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Recession – The Federal Reserve increased the key interest rate in the United States once again on Wednesday and stated that additional hikes are forthcoming as it fights against rising prices. This strong posture has fueled fears of a recession in the United States.
It was the third straight hike of 0.75 percentage point by the Federal Open Market Committee (FOMC), which is responsible for establishing policy for the Federal Reserve. This continued the Fed’s strong action to tamp down inflation that has skyrocketed to the highest level in forty years.
The Federal Open Market Committee (FOMC) has stated that it “anticipates that continued increases… will be appropriate.” The rise brings the policy rate to a range of 3.0-3.25 percent.
The ever-increasing cost of living is putting a strain on American households as well as businesses, and it has become a political liability for President Joe Biden just as congressional midterm elections are approaching in early November.
But the contraction of the world’s greatest economy would be an even more catastrophic blow to Biden, as well as to the reputation of the Federal Reserve and the globe as a whole.
The Chair of the Federal Reserve, Jerome Powell, has made it quite apparent that policymakers will continue to move forcefully to cool the economy and avoid a replay of the 1970s and early 1980s, which was the last time that inflation went out of control in the United States.
In the 1980s, it required decisive action and a recession to ultimately bring prices down, and the Federal Reserve is unwilling to give up the credibility it has worked so hard to earn in its fight against inflation.
Ahead of the Fed’s announcement, the Philippine peso fell to a new record low of P58 per dollar
FOMC members anticipate a steep downturn this year, with US GDP growth of just 0.2 percent, but a return to expansion in 2023, with annual growth of 1.2 percent, according to the Fed’s quarterly estimates, which were disclosed along with the rate decision on Wednesday.
The markets fall as a Fed rate hike becomes more likely, but Putin’s decision boosts the currency and oil prices.
After the meeting, Powell will give a news conference, which will be keenly analyzed for hints about how much more work Powell believes the Fed needs to do before it can declare victory in the fight against inflation.
Members of the FOMC anticipate additional rate hikes this year and next, with no rate reductions expected until 2024.
Doubts, pressure –
Diane Swonk, an economist at KPMG, issued a warning that the central bank will come under growing pressure, particularly if unemployment starts to climb, and Fed members “will become political pinatas.”
Although the FOMC observed ongoing “strong” job gains in recent months and low unemployment, the estimates project that the jobless rate would climb to 4.4 percent next year and maintain around that level through 2025. The FOMC also noted that the unemployment rate is currently low.
Given the suffering that continuing high inflation would inflict, in particular on those who are least able to endure it, Powell and other central bankers have been communicating the same message: An economic downturn is preferable to continued high inflation given the situation.
Amidst the Russian war in Ukraine, global supply chain bottlenecks, and Covid lockdowns in China, inflation is a worldwide phenomena, and other major central banks are taking measures to combat it as well.
Before the rate of inflation can begin to decline, many economists believe that the United States economy will need to experience at least a brief spell of negative GDP in the first half of 2023.
The report on consumer prices for August revealed widespread rises, which is disheartening given that recent weeks had seen a welcome decline in the price of gasoline at the pump.
The Federal Open Market Committee (FOMC) issued a statement in which it acknowledged “broader pricing pressures” that extend beyond food and energy prices and emphasized that government officials are “deeply committed to returning inflation to its 2 percent objective.”
The Federal Reserve has increased the benchmark lending rate four times already this year, including two consecutive increases of three quarters of a percent each in the months of June and July. This strategy is known as front-loading.
On account of Ukraine and the Federal Reserve rate, the dollar index reached its highest level in twenty years.
The goal is to raise the cost of borrowing and decrease demand, and it appears to be having an effect: the housing market has slowed down as a result of the surge in mortgage rates.
“The irony here is that just as the Fed is ratcheting up the anti-inflation rhetoric to fever-pitch, the forces needed to drive down inflation over the next year are now in place,” said Ian Shepherdson of Pantheon Macroeconomics. “The irony here is that just as the Fed is ratcheting-up the anti-inflation rhetoric to fever-pitch, just as the Fed is ratcheting-up the anti-
The news had a devastating effect on stock prices in the United States.
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