As the US Federal Reserve battles to control spiraling inflation, it announced another significant increase in interest rates on Wednesday.
It was the third time in a row that the USA federation significantly raised its benchmark interest rate, this time by 0.75 percentage points. Everything from credit card debt and mortgages to company finance became more expensive as a result. The current Fed rate ranges from 3% to 3.25%.
By predicting that interest rates would rise to 4.4% by year’s end and not begin to decrease until 2024, the central bank gave a signal as to potential future hikes. Rate rises, according to the US federation, are expected to have a negative effect on housing prices, the job market (raising unemployment from 3.7% to 4.4% next year), and economic development.
“Inflation must be left in the past. I wish there were an easy way to do it. Jerome Powell, the head of the USA federation, said there isn’t. We’ve known for a while that it would be challenging to achieve price stability, a gently landing, and a small increase in unemployment. And we’re not certain. Nobody is able to foretell if or how big of a recession will be caused by this process.
The USA federation first dismissed inflation as a “transitory” phase brought on by the pandemic and supply chain issues. But when prices increased, the Fed launched a series of audacious initiatives to control the market.
Inflation was first rejected by the USA Federation as a “transitory” phase brought on by the epidemic and supply chain problems. But when prices increased, the Fed launched a series of audacious initiatives to control the market.
Powell has previously stated that he anticipates a “soft landing” for the economy, or a decline that lowers prices without causing an increase in unemployment or a recession.
Several of the top US bankers testified before Congress on Wednesday and said it was still too early to tell how rate increases will affect the economy. CEO Jamie Dimon stated, “I think there’s a chance, not a big chance, a tiny chance, of a gently landing.”
There’s a chance of both a severe and a mild recession. The crisis in Ukraine and the volatility of the world’s food and energy sources provide a threat that it may worsen. In order to respond correctly if and when it occurs, I think policymakers should be prepared for the worst-case situation.
Raising interest rates makes borrowing more expensive, which should lead to less spending and a drop in prices. Since the policy is a crude instrument, rate rises take longer to have an impact on the overall economy. The fee hikes implemented by the USA federation haven’t had much of an impact so far.
While consumer expenditure climbed in August, inflation remained persistently high at 8.3% higher than it was in August of the previous year. The US labour market is still robust, and the country’s unemployment rate is still at a 50-year low.
There are some signs of a slowdown, though. According to the National Association of Realtors, existing home sales declined in August for the seventh consecutive month. The current level of sales is the lowest since they briefly ceased in the midst of the epidemic’s peak in 2020, when they were 19.9% lower than in August 2021. Several major corporations, including Ford, Walmart, BestBuy, and others, have also announced hiring freezes or layoffs.
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