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Thursday, September 29, 2022

Fed raises interest rates by 0.75% for the third time in a row

(CNN)– The United States Federal Reserve made history this Wednesday by approving a 0.75 percentage point increase for the third time in a row, in its fight to curb unbridled inflation that is battering the economy, hurting consumers and bolstering President Joe Biden’s administration. to choke.

The big hike, which seemed unimaginable to the markets a few months ago, brought the central bank’s benchmark interest rate to a new target range of 3%-3.25%. This figure represents the highest federal funds rate since the global financial crisis in 2008.

The Fed’s decision represents the central bank’s toughest policy in its fight against inflation since the 1980s, another period of skyrocketing prices.

The decision is likely to cause economic hardship for millions of American businesses and families by increasing the cost of home, auto and other loans.

Federal Reserve Chairman Jerome Powell acknowledged the economic pain caused by this increasingly stringent regime.

“We have to keep going until we’re done,” Powell said at a central bankers’ forum in Jackson Hole, Wyoming, in August. “While higher interest rates, slower growth and weak labor market conditions will dampen inflation, they will also bring some problems for households and businesses. These are the unfortunate costs of reducing inflation. But much more than not restoring price stability. There will be losses,” he said. warned.

The Fed’s updated summary of economic projections, released Wednesday, shows that damage: The quarterly report showed a less optimistic outlook for economic growth and the labor market, with the average unemployment rate at 4.4% in 2023, up from 3.9% from the Federal Reserve. was more. This is much higher than what officials estimated in June and the current rate of 3.7%.

US GDP, the main measure of economic output, was revised down 0.2% after an initial figure of 1.7% for June. This is well below analyst estimates: Bank of America economists had calculated that GDP would be revised upward to 0.7%.

Inflation projections also rose. A summary of the Fed’s projections showed that core personal consumption spending, the Fed’s preferred measure of pricing, is projected to reach 4.5% this year and 3.1% in 2023. This figure is 4.3 per cent and 2.7 per cent, respectively, compared to June’s estimates.

Perhaps most important to investors seeking further guidance from the Fed is the fed funds rate projection, which details what officials believe is the right path for future rate hikes. Data released Wednesday showed the Federal Reserve expects interest rates to remain high for years to come.

The median fed funds rate projection was revised upwards from 3.4% in June to 4.4% by 2022. This number increased from 3.8% in 2023 to 4.6%. The rate was also revised upwards from 3.9% for 2024 to 3.4% in June and is expected to remain higher at 2.9% in 2025.

Overall, the new projections reflect an increased risk of monetary policy tightening to the point of triggering a recession.

They also provide some evidence that the Fed is willing to accept “damage” to economic conditions to reduce persistent inflation.

According to Moody’s Analytics, higher prices mean consumers are now spending about $460 more on groceries each month than they did last year. Still, the labor market remains strong, as does consumer spending. House prices remain high in many areas, even though mortgage rates have risen substantially. This means the Fed may feel the economy may accept more aggressive rate hikes.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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