The Federal Reserve took an aggressive approach to lower high inflation by raising borrowing costs, which had a significant impact on the US housing market, which is extremely interest-rate sensitive.
Later on Wednesday, the central bank is expected to raise interest rates by three-quarters of a percentage point.
- The target interest rate increased to a range of 3.00%-3.25%;
- forecasts indicate that another significant increase is anticipated before the year’s end.
- No “painless” solution exists, according to Powell, to reduce inflation.
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As the US central bank increased interest rates for the third time in a row on Wednesday, Federal Reserve Chair Jerome Powell said that he and his team of policymakers will continue their fight to contain inflation. Three-quarters of a percentage point has been increased. Powell gave the impression that interest rates will keep going up this year.
Powell specifically mentioned the housing market, which has been fueling consumer inflation and is in desperate need of a correction due to growing unemployment.
Existing house sales in the United States have been declining for seven months, according to a study released on Wednesday by the National Association of Realtors.
Powell claimed that the once-“red hot” housing market in the United States had undergone a substantial imbalance. He advocated for improved supply and demand synchronisation, which would require a correction in the housing market to achieve.
Despite the Fed’s vigorous efforts, which included the announcement of a 75-basis-point rate rise in June and July and the job market being robust with an increase in earnings as well, there has been little to no change in the most recent inflation figures.
The federal funds rate is expected to increase by another 75 basis points in the two next policy meetings of the Fed in 2022, according to projections for the end of the year.
Growth Has Slowed
Powell said that even if it resulted in more unemployment and delayed growth, the Fed’s decision to lower inflation from its greatest level in forty years is evidenced by the increasing policy rates. He hoped there were more effective solutions for this issue, but there was no quick fix.
By 2025, the revised forecasts want to slowly bring inflation down to 2%. The Fed noted that recent data indicated small increases in spending and output, but the updated estimates show an increase in economic growth from 0.2% in 2022 to 1.2% in 2023, which is much less than the economy’s potential growth rate.
The unemployment rate is expected to rise from 3.7% to 3.8% in 2022 and reach 4.4% in 2023. This would be above the rise in unemployment associated with previous recessions.
The Federal Reserve took an aggressive approach to lower the high inflation by raising borrowing costs, which had a significant impact on the US housing market, which is extremely interest-rate sensitive.
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