Fed decides fourth rate hike to tame inflation despite recession fears

The Federal Reserve announced on Wednesday that it will raise interest rates by 0.75 percentage points to tame inflation. This is the fourth rate hike of the year and the Fed has acknowledged that economic conditions appear to be “improving”.

Following the conclusion of a two-day Federal Open Market Committee (FOMC) meeting, the Fed released a policy statement announcing the rate hike. Much of the language appeared to mirror last month’s statement justifying its decision, but this time the Fed gave a sign that it could see its hawkish strategy starting to pay off.

“Recent spending and production indicators have weakened. Nonetheless, job growth has been robust in recent months,” the statement said.

Markets and observers suspected the Fed was likely to hike rates at its last meeting, especially after June inflation readings showed inflation remaining very much intact. According to government data, the consumer price index (CPI) was up 9.1%, while the producer price index (PPI) rose to 11.3%.

The Fed also showed some signs of caution by raising interest rates to the same level as last month. Business leaders have openly warned that they see the economy poised for a recession as interest rates and inflation continue to rise. Democratic senators have also expressed concern that the Fed could stumble into a recession in its attempt to lower inflation.

In a Senate hearing in June, Fed Chair Jerome Powell acknowledged that there was a possibility that the economy was at risk of entering a recession, but that it was not a foregone conclusion. Powell also flatly denied that the Fed wanted to trigger a recession as part of its anti-inflation strategy.

Dan North, senior economist at trade credit insurer Allianz Trade North America, said it was impossible for the Fed to ignore the “relentless pace of inflation” after June’s numbers. He noted that the Fed’s dovish stance poses real recessionary risks for the economy as a whole.

“The Fed is slowing down the economy really hard and increasing the risk of a recession,” North told the International Business Times in an email.

North pointed to the impact of rate hikes on the housing market to illustrate an example of how rate hikes carried their own costs. Mortgage rates rose on the back of the Fed’s decision in March to raise interest rates and lower applications. The Mortgage Bankers Association reported Wednesday that refinancing requests had fallen 83% year over year before the Fed’s decision.

“The Fed is slowing down the economy really hard and increasing the risk of a recession,” North said. “The Fed needs to raise rates to fight inflation, but it’s an ugly scenario.”

https://www.ibtimes.com.au/fed-enacts-fourth-rate-hike-tame-inflation-despite-recession-fears-1835270?utm_source=Public&utm_medium=Feed&utm_campaign=Distribution Fed decides fourth rate hike to tame inflation despite recession fears

Fry Electronics Team

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