The Federal Reserve raises interest rates by 0.75% to fight inflation

The Federal Reserve announced on Wednesday that it will raise interest rates by 0.75% to combat skyrocketing inflation.

It’s the second consecutive Fed hike by three-quarters of a percentage point and the fourth hike this year. The reason for the price increases: The prices of goods and services are rising at the highest rate in four decades. Last month they were up more than 9% compared to June of last year.

By raising interest rates, the Fed hopes to reduce aggregate demand in the economy, which in turn should slow price growth.

In its statement on Wednesday, the Fed said there were signs the rate hikes were working.

“Recent spending and output indicators have weakened,” the bank said, adding that at the same time employment growth is resilient and the unemployment rate is low despite inflation.

The Fed also cited Russia’s war against Ukraine as a key source of inflation while stifling global economic activity overall.

While many individual households are struggling, overall U.S. consumers still have about $2 trillion in savings from the pandemic, said PNC chief economist Gus Faucher. Combined with a stable employment base, those savings have allowed households to weather much of the inflationary environment, he said.

Still, it’s not clear whether the Fed will manage the balancing act of slowing inflation while avoiding greater economic damage. Many economists are now worried about both inflation, which has hit a four-decade high, and gross domestic product, which could show the US economy has contracted for two consecutive quarters — the technical definition of a recession. On Thursday, the Bureau of Labor Statistics will release the latest GDP figures.

Although some economists use GDP to estimate whether the economy is in a “technical” recession, only the National Bureau of Economic Research, a private, non-partisan group, has the authority to officially make such a declaration.

In a note to clients on Friday, Chris Williamson, chief economist at S&P Global Market Intelligence, wrote that except for the pandemic months, US manufacturing is falling at a pace not seen since 2009.

“Manufacturing has faltered and the service sector’s recovery from the pandemic has reversed as tailwinds from pent-up demand have been overcome by rising living costs, higher interest rates and an increasingly gloomy economic outlook,” he said.

There are still some bright spots in the economy. Unemployment remains low at 3.6% and the labor market remains strong. As the Fed focuses on tightening monetary policy, it remains to be seen how well its efforts will impact the broader economy.

https://www.nbcnews.com/business/economy/federal-reserve-raises-key-interest-rate-to-fight-inflation-rcna40142 The Federal Reserve raises interest rates by 0.75% to fight inflation

Fry Electronics Team

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