Federal Reserve Raises Rates by 0.25% Amidst High Inflation, Potential for More Hikes.

The Federal Reserve’s major decision to raise interest rates by 0.25% to curb inflation on Wednesday. In the last 12 sessions, there have been 11 rate increases. This action has caused the benchmark overnight interest rate to rise to the highest level observed by the U.S. central bank in 16 years, where it currently ranges from 5.25% to 5.50%. The continuous problem of high inflation is the main cause of this rate increase.

The Federal Reserve stated in its policy statement that they will continue to evaluate incoming data and its possible influence on monetary policy, mostly using the same wording as their statement from June. As they move through the present tightening cycle, they are keeping all of their options open.

inflation

The Fed intends to examine the effects of the rate rises on the economy before making more changes to its policies in order to reach its target inflation rate of 2%. Policymakers maintain their tough stance while waiting for further advancements in easing price pressures, notwithstanding inflation figures that have been weaker than anticipated since the previous meeting in June.

Important inflation indicators are still much over the Federal Reserve’s goal level, but the economy has been operating better than anticipated, with an unemployment rate of only 3.6%.

Strong job growth has been reported, and the economy is said to be expanding at a moderate rate—a small increase above the “modest” rate noted in the June meeting. The U.S. government is anticipated to publish an annual growth rate of 1.8% for the second quarter, according to analysts surveyed by Reuters.

Inflation

Looking forward, the next Fed meeting won’t be for another eight weeks, and if price hikes slow down, this one could be the last for a time. The tightening process started with a cautious quarter-percentage-point hike in March 2022 and has since picked up speed, becoming the most rapid since the 1980s.

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In a news conference to discuss the decision and statement of policy, Federal Reserve Chair Jerome Powell may offer further details about what would prompt the central bank to consider another rate rise or refrain from one.

In their most current economic forecasts, 12 out of 18 Fed members predict that by the end of this year, at least one further quarter-percentage-point hike will be required.

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