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Wednesday, June 29, 2022

WATCH: Federal Reserve Chairman Powell gives news briefing after interest rate hike

WASHINGTON ( Associated Press) – The Federal Reserve on Wednesday intensified its campaign to slash high inflation by raising its key interest rate by three-quarters of a point – its biggest increase in nearly three decades – and the coming big rate hike. indicated an increase in the risk of another recession.

Watch the in-player briefing above.

The Fed raised its benchmark short-term rate, which affects a number of consumer and business loans, to a range of 1.5 percent to 1.75 percent, in a move announced after its latest policy meeting. With the additional rate hikes, policymakers expect their prime rate to reach 3.25 percent to 3.5 percent by the end of the year – the highest level since 2008 – meaning that most forms of lending will become increasingly more expensive.

The central bank is ramping up its drive to strengthen credit and slow growth as inflation hit a four-decade high of 8.6 percent, spreading to more sectors of the economy and showing no signs of slowing. has been Americans are also expecting higher inflation to last longer than previously thought. This sentiment could embed an inflationary psychology in the economy that would make it harder to bring inflation back to the Fed’s 2 percent target.

The Fed’s three-quarter-point increase is more than the half-point increase that Chair Jerome Powell suggested earlier this week is likely to be announced. The Fed’s decision to raise the rate as big as Wednesday was an acknowledgment that it is struggling to contain the momentum and persistence of inflation, worsened by Russia’s war on Ukraine and its effects on energy prices. .

Asked at a news conference on Wednesday why the Fed was announcing a more aggressive rate hike than before, Powell responded that the latest reports showed inflation to be warmer than expected.

“We thought this meeting needed strong action,” he said, “and we did.”

Inflation has risen on top of voter concerns in the months before Congress’ midterm elections, soured public outlooks about the economy, weakened President Joe Biden’s approval ratings and the prospect of Democratic losses in November. has increased. Biden has tried to show that he recognizes the pain inflation is causing to American families, but has struggled to find policy actions that can make a real difference. The president has emphasized his belief that the power to curb inflation rests primarily with the Fed.

Read more: The cost of necessities rose in May, leaving the US with a new 40-year high in inflation

Yet the Fed’s rate hikes are blunt tools for trying to tame inflation as well as maintain growth. Shortages of oil, gasoline and food are driving inflation. The Fed is not ideally suited to address many of the roots of inflation, including Russia’s invasion of Ukraine, the still-shut global supply chain, labor shortages and rising demand for services from airline tickets to restaurant meals.

Borrowing costs in the US economy have already risen sharply in response to the Fed’s moves, with the average 30-year fixed mortgage rate above 6 percent, the highest level before the 2008 financial crisis, from just 3% initially. above year. The yield on the 2-year Treasury note, the benchmark for corporate borrowing, rose to 3.3%, its highest level since 2007.

Even if the recession is avoidable, economists say it is almost inevitable that the Fed will have to inflict some pain – most likely in the form of high unemployment – as the price of defeating chronically high inflation.

In their updated forecasts on Wednesday, the Fed’s policymakers indicated that after this year’s rate hike, they expect two more rate hikes by the end of 2023, at which point they expect inflation to eventually rise to 3. percent, closer to their 2 percent target. But he expects inflation to still be 5.2 percent at the end of this year, much higher than his estimate in March.

Over the next two years, officials are predicting a much weaker economy than they imagined in March. They expect the unemployment rate to reach 3.7 percent by the end of the year and 3.9 percent by the end of 2023. They are only a marginal increase from the current 3.6 percent unemployment rate. But they mark the first time since it began raising rates that the Fed has acknowledged that its actions will weaken the economy.

The central bank has also sharply lowered its forecast for economic growth to 1.7 percent this year and next year. That’s below its outlook in March, but better than some economists expected for a recession next year.

Expectations of big Fed hikes have sent a range of interest rates to their highest points in years. The yield on the benchmark 2-year Treasury note for corporate bonds has reached 3.3 per cent, its highest level since 2007. The 10-year Treasury yield, which directly affects mortgage rates, has climbed to 3.4 percent, nearly half a point since last week and the highest level since 2011.

Investments around the world, from bonds to bitcoin, have fallen on fears around high inflation and the possibility that the Fed’s aggressive campaign to contain the recession will result. Even if the Fed manages to make a delicate move to curb inflation without causing a recession, higher rates will still put pressure on stock prices. The S&P 500 has already sunk more than 20 percent this year, meeting the definition of a bear market.

Other central banks are also trying to cushion rising inflation, with even their countries at greater risk of recession than the US, with the European Central Bank raising rates by a quarter point in July. Hopefully, this is the first increase in 11 years. If inflation remains at record-high levels, it could announce a major hike in September. On Wednesday, the ECB vowed to create a market backstop that could buffer member countries against the financial turmoil that erupted during the debt crisis more than a decade ago.

The Bank of England has raised rates four times since December to a 13-year high, despite predictions that economic growth would remain unchanged in the second quarter. BoE will hold interest rate meeting on Thursday.

Last week, the World Bank warned of the threat of “inflation” – slow growth coupled with high inflation around the world.

A key reason for the prospect of a recession is that economists increasingly believe that for the Fed to slow inflation to its 2 percent target, consumer spending, wage gains and economic growth will need to be sharply reduced. Ultimately, the unemployment rate will almost certainly have to rise — something the Fed hasn’t forecast yet, but in updated economic projections it will release Wednesday.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
World Nation News is a digital news portal website. Which provides important and latest breaking news updates to our audience in an effective and efficient ways, like world’s top stories, entertainment, sports, technology and much more news.
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