Federal Reserve raises benchmark interest rates, raising fears of recession

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WASHINGTON, DC, July 27, 2022 – The Federal Open Market Committee raised the target range for the federal funds rate by 3/4 percentage point, bringing the target range to 2-1/4 to 2-1/2 percent, the chairman of the Federal Open Market announced today. the Federal Reserve, Jerome Powell. In June 2022, the effective federal funds rate was 1.52%. This is the most aggressive hike since 1994, according to CNBC.

At his press conference today, Powell said “another unusually large increase may be appropriate at our next meeting”, but that decision will depend on economic indicators in the coming weeks.

According to Powell, Chairman of the Federal Reserve, the explanation for such an aggressive rate hike is “to take the necessary steps to bring inflation back to our longer-term 2% target.”

“From the perspective of our Congressional mandate to promote maximum employment and price stability, the current situation is clear: the labor market is extremely tight and inflation is far too high,” said President Powell. “Against this backdrop, the FOMC today raised its key interest rate by 3/4 percentage point and expects continued increases in the target range of the federal funds rate to be appropriate. Additionally, we continue the process of significantly reducing the size of our balance sheet, and I will have more to say about monetary policy actions today after briefly reviewing economic developments.

The Federal Reserve’s monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people. My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to afford the higher costs of essentials like food, shelter and transportation.

Financial indicators

On July 13, the United States Bureau of Labor Statistics announced that consumer inflation had hit a 41-year high of 9.1% in June, up from 8.6% in May – the highest inflation high since November 1981. The energy index rose 41.6% over the past year, the highest since April 1980.

The home food index rose 1.0% in June from May, the sixth consecutive increase of at least 1.0% for this index. Although the overall food index rose 10.4%, the largest 12-month increase since the period ending in February 1981, the home food index rose 12.2%, the most sharp increase over 12 months since the period ending in April 1979.

Inflation June 2022

Powell shared that consumer spending growth has slowed because consumers have less disposable income and are experiencing “tighter financial conditions.” In the second questionnaire of this year, according to Powell, the housing sector and business fixed investment are both down.

However, despite falling financial indicators, Powell pointed out that the labor market remains “extremely tight, with unemployment near a 50-year low, job vacancies near historic highs and strong wage growth. “.

American recession on the horizon

The county is gearing up for tomorrow’s second-quarter GDP estimate from the Commerce Department’s Bureau of Economic Analysis (BEA). Growth in the first quarter fell to an annualized rate of 1.5%, and an updated estimate today from the Atlanta Fed puts the second quarter at -1.2%, officially placing the United States in what most economists around the world consider an official recession.

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