US Federal Reserve Raises Interest Rates by 75 Basis Points to Combat Inflation
Borrowing costs are continuing to rise due to ongoing economic trends, even though some indicators suggest that the economy may be slowing down. A range
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US Federal Reserve Hikes Interest Rates by 75 Basis Points to Combat Inflation
The US Federal Reserve (Fed) has raised interest rates by 75 basis points to combat rising inflation. This move aims to cool down the economy and slow down price gains.
Impact on Economy
Higher interest rates are already having an impact on the US economy, particularly in the housing market where sales have slowed. The Fed officials maintain that they can manage a soft landing for the economy without triggering a recession.
However, analysts say it will take a recession with increasing unemployment to significantly slow down price gains. Recent indicators of spending and production have softened, but job gains remain robust, and the unemployment rate is low.
Fed Officials’ Stance
Powell, the Fed Chairman, stated that he does not believe the economy is in recession, citing a strong labor market as evidence.
Global Central Banks’ Response
Central banks around the world are also raising interest rates to combat inflation. The Bank of Canada hiked rates by 1 percentage point earlier this month, and the European Central Bank surprised with a larger-than-expected half-point move for its first increase in over a decade.
Interest Rate Futures Pricing
Traders expect the Fed to slow down the pace of rate increases at its next meeting in September or continue with super-sized hikes if strong price gains persist. The futures pricing shows traders expecting rates to peak around 3.4% by year-end, followed by cuts in the second quarter of 2023.
Inflation Rates
The US consumer price index rose by 9.1% in June from a year earlier, hitting a fresh four-decade high. This has eroded earnings and created challenges for President Joe Biden and congressional Democrats ahead of the midterm elections.
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