HomeBusinessFed raises interest rate by 0.75 percentage point as US tries to...

Fed raises interest rate by 0.75 percentage point as US tries to curb inflation

The Federal Reserve announced another sharp rate hike on Wednesday as the central bank struggles to curb runaway inflation.

The Fed raised its benchmark rate by 0.75 percentage point, the third such outrageous rate hike in a row, pushing the Fed rate to 3%-3.25% and raising the cost of everything from credit card debt and mortgages to corporate financing.

The central bank announced further hikes to come, forecasting interest rates to reach 4.4% by the end of the year and not fall until 2024. The Fed expects interest rate hikes to hit the labor market, pushing unemployment to rise from 3.7% to 4.4% next year. year – house prices and lower economic growth.

“We need to get inflation behind us. I wish there was a painless way to do that. There isn’t one,” Fed Chair Jerome Powell said. “We have always understood that it would be quite a challenge to restore price stability while achieving a relatively modest rise in unemployment and a soft landing. And we don’t know. No one knows whether this process will lead to a recession and, if so, how big that recession would be.”

Central bankers around the world are raising interest rates sharply as they also try to address the cost of living crisis. This week, the Bank of England is expected to announce its largest rate hike in 25 years. Earlier this month, the European Central Bank raised interest rates across the eurozone by a record margin.

The Fed initially rejected soaring inflation, arguing that it was a “passing” phase caused by the pandemic and supply chain problems. But as prices escalated, the Fed announced a series of aggressive measures in hopes of bringing prices back under control.

Until recently, Powell had said he hoped the economy could achieve what he called a “soft landing”: a slowdown that would lower costs, but not lead to a spike in unemployment and a recession.

At a congressional hearing on Wednesday, some of the top US bankers said it was too early to say how rate hikes would affect the economy. “I think there is an opportunity, not a big change, but a small chance of a soft landing,” said Jamie Dimon, CEO of JPMorgan Chase.

“There is a chance of a mild recession, a chance of a hard recession. And because of the war in Ukraine and the uncertainty in global energy and food supplies, there’s a chance it could get worse. I think policy makers need to be prepared for the worst, so we’re taking the right measures if and when that happens,” he said.

Raising interest rates makes borrowing more expensive, which should reduce spending and lower prices. But policy is a blunt instrument and rate hikes need time to seep into the broader economy. So far, the Fed’s rate hikes have had no significant impact.

The US job market remains robust, with unemployment still close to a 50-year low, consumer spending rising last month and inflation remaining stubbornly high in August, 8.3% higher than a year ago.

However, there are some signs of a slowdown. Existing home sales fell for the seventh straight month in August, according to the National Association of Realtors. Sales were 19.9% ​​lower than in August 2021 and are now at their lowest level since they briefly paused during the peak of the pandemic in 2020. And major employers, including BestBuy, Ford and Walmart, have announced layoffs or freezes.

#Fed #raises #interest #rate #percentage #point #curb #inflation



Please enter your comment!
Please enter your name here

Most Popular