America’s Economy: The Fed Raises Rates Again!!

America’s Economy: The Fed Raises Rates Again!!

In its most aggressive effort in thirty years to control excessive inflation, the Federal Reserve hiked its benchmark interest rate by a hefty three-quarters of a percent on Wednesday. With this action, the Fed will boost its benchmark interest rate, which has an impact on a large number of consumer and commercial loans, to a range of 2.25 percent to 2.5 percent, which is its highest level since 2018, according to the AP. Prior to last month, the Fed hadn’t raised rates since 1994, when it did so by 0.75 point. The central bank’s choice is a reflection of its tireless efforts to stifle price increases throughout the economy. Although one member of the rate-setting committee voiced dissatisfaction in June, CNBC notes that the Wall Street Journal reported that the decision was made unanimously.

The Fed increases borrowing costs, making it more expensive to get a mortgage, a vehicle loan, or a business loan. After that, it is likely that people and businesses would borrow less and spend less, which will limit inflation and cool the economy. The central bank is wagering that it can contain inflation by only slightly slowing GDP while avoiding a recession, a risk that many analysts believe could have unfavorable consequences.

Bank of America economists predict a “mild” recession later this year. Recession within two years is predicted to be 50/50 likely by Goldman Sachs analysts. Most analysts who anticipate a recession believe it will be rather light. They point out that the jobless rate is close to a 50-year low and that households are generally in good financial shape, with more cash and lower debts than before the 2008 housing bubble burst.

According to Fed officials, their main short-term rate will be “neutral” at its new level, which they refer to as neither stimulating growth nor stifling it. The Fed wants its benchmark rate to reach neutral pretty fast, according to chair Jerome Powell. If the economy continues to show indications of slowing down, the Fed may scale back the amount of rate increases after its September meeting, maybe to a half-point.

By the end of the year, the Fed’s short-term rate would have risen to 3.25 percent to 3.5 percent, the highest level since 2008. Such an increase, possibly followed by quarter-point increases in November and December, would still accomplish this.

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