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Fed Announces Another Hike in Interest Rates

On Wednesday, the Federal Reserve raised interest rates by 75 basis points in its bid to control skyrocketing inflation, which has burdened Americans since the beginning of Biden’s presidency. 

Prior to the latest hike, the central bank also increased the interest rate in its June and July meeting, thus increasing the risk of an economic recession in the country.

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Government Further Tightens the Monetary Policy

This month’s interest rate hike puts the federal funds rate at 3% to 3.25%, which is the most aggressive policy rate hike since 1994.

Meanwhile, the central bank also insisted it is aiming to increase the federal funds rate up to 4.4% by the end of this year, a dangerously high number that will chronically reduce economic activity in the United States.

Federal Reserve officials are also expected to continue raising the interest rate in 2023; it is not an election year, which means the government is likely to make politically tough decisions.

However, from the beginning of 2024, the Fed will once again start to decrease the policy rate, bringing it back to almost 3.9% in 2024 and 2.9% in 2025.

After increasing the policy rates, Fed Chairman Jerome Powell stated rising inflation is urging the government to take extreme measures.

Even though the central bank wanted to decrease inflation without burdening people, there was no painless way to reduce skyrocketing prices, Powell added. 

Previously, Powell also asked Americans to be prepared to face tough times, due to the rising interest rates.

Fed Predicts More Misery for Americans

As per the median economic projections, the Federal Reserve will increase the interest rate by 125 basis points further this year, including a 75 basis point hike in November and a 50 basis point increase in December.

Powell insisted policymakers have not decided on the exact interest rate hikes for the rest of this year, adding all the decisions will be made upon seeing the upcoming economic data.

Despite the continuous policy rate hikes and Fed’s claims, inflation is not reducing in the United States. In last month’s report, Consumer Price Index numbers were higher than expected, as the CPI increased by 0.1% in August compared to July.

After July’s data, White House officials established inflation already touched its peak value and will only decrease until the end of this year, but August’s data busted Biden’s claims of an ongoing economic recovery. 

As the Fed continues to increase interest rates, many economic experts are warning about a looming recession that is likely to hit the world as soon as later this year.

Powell also signaled toward an upcoming recession, as he refuted his own previous claims of the so-called “soft landing,” which was supposed to reduce inflation without bringing a recession.

According to Powell, the possibility of a “soft landing” is diminishing as bringing inflation down to 2% comes with far-reaching consequences.

This article appeared in TheDailyBeat and has been published here with permission.

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