OUCH! More Rate Hikes Coming

    0
    170

    In a speech last month, Jerome Powell, the Federal Reserve Chair, stated that Fed’s efforts to reduce inflation by raising interest rates aggressively would “bring some discomfort.” Americans might get a better idea of what pain is in store soon.

    At its most recent meeting, the Fed is expected to increase its key short-term interest rate by three-quarters of an inch for the third consecutive year. A further increase of this magnitude would see the benchmark rate, which is used to determine many business and consumer loans, rise to 3% to 3.255%. This is the highest level since 14 years.

    As a sign of Fed’s growing concern about inflation, it will likely signal that it plans on raising rates significantly higher than forecasted three months ago and keeping them higher for a longer time.

    Economists believe that Fed officials will forecast that their key interest rate could rise to 4% by the end of this year. They are also expected to signal further increases in 2023, possibly to 4.5%.

    Trump’s Secret Legacy Is Set To Create Small Fortunes!

    Developing Story - Trump administration oversaw a RADICAL change to the tech world… one that could unleash a huge wave prosperity… and wealth creation in the near future. Find Out More

    Find Out More

    By raising interest rates to this level, short-term rates would increase the likelihood of a recession next year. This would cause a sharp rise in mortgages, car loans, and business loans. These higher borrowing costs are intended to slow down growth by cooling off an otherwise robust job market and limiting wage growth. But there is a growing risk that the Fed could cause a recession that will result in job losses.

    Since before 2008’s financial crisis, the Fed has not projected rates that high in the United States. The average fixed mortgage rate reached 6% last week, its highest level in 14 years. According to Bankrate.com, credit card borrowing costs are at their highest point since 1996.

    Powell and other Fed officials maintain that the Fed’s goal remains to achieve a “soft landing”, which would slow down growth enough to contain inflation, but not to cause a recession.

    However, the government announced that the inflation rate for the past year had reached 8.3%. Even worse, core prices, which exclude volatile food and energy, rose faster than expected.

    Inflation has been tracked throughout the economy by the inflation report, which complicates the Fed’s efforts to combat it. The Fed’s anti-inflation efforts are now being hampered by rising wages and the desire of consumers to spend more.

    William Dudley, who was formerly president of the Federal Reserve Bank of New York, stated that “they’re going to try to avoid recession.” They’re going to attempt to achieve a soft landing. Problem is, the space to do this is practically non-existent at the moment.

    Powell won’t be giving any hint at easing up credit tightening during a press conference Wednesday after the Fed meeting. Economists believe that the Fed will stop raising rates early in 2023. They expect Powell to maintain his anti-inflation hardline stance for the time being.

    “It’s going be a hard landing,” stated Kathy Bostjancic of Oxford Economics.

    Bostjancic stated that “He’s certainly not going to say that.” She referred to Powell’s July Fed meeting, where he expressed hope for a pullback in rate hikes. However, Bostjancic said that he also wanted to ensure that markets don’t rally. This is what happened last year.

    Investors responded by buying bonds and bidding up stock prices, which led to lower rates for securities such as the 10-year Treasury. The Fed does not want higher stock prices or lower bond yields to boost the economy.

    Powell noted at a June news conference that a three-quarter-point rate increase was “unusually large” and said that it would not be common for Fed to make such a move. However, after the August inflation report, it seems that the Fed is now all but certain to announce its third consecutive increase. If future inflation measures don’t improve, a fourth such hike could also be possible.

    Already, the central bank has initiated the most rapid series of interest rate increases since the 1980s. Some economists and Fed officials argue that the central bank has not raised rates enough to slow down growth and limit borrowing.

    Loretta Mester is the president of the Cleveland Federal Reserve Bank and will vote on the Fed’s decision this week. She said that she believes it will be necessary for the Fed to raise its rate to “somewhat over 4%” by next year.

    Mester stated that “I don’t anticipate the Fed cutting” rates in the next year. This dispelled Wall Street investors’ hopes for a reverse. Mester’s comments contributed to the sharp drop in stock prices that occurred last month after Powell’s harsh anti-inflation speech at an economic meeting in Jackson Hole.

    Powell stated that “our responsibility to deliver price stability” was an unconditional obligation. This comment has been widely understood to mean that the Fed will fight against inflation, even if it means a deep recession.

    Many economists believe that widespread layoffs and a recession will be needed to slow the rise in prices. Brookings Institution published research earlier this month that suggested that unemployment could rise to 7.5% in order to bring inflation back to the Fed’s target of 2%.

    According to Laurence Ball, an economist at Johns Hopkins University and two economists from the International Monetary Fund, only a severe downturn would cause wage growth to decline and consumer spending to fall enough to cool inflation.

    Jeff Bezos’ Big Bet
    World’s 2nd-Richest Man’s Latest Bombshell

    The fuse has already been lit... and on March 9th I believe he’ll reveal a few more details. If you missed out on taking advantage of the Amazon success story... don’t miss out again. Find Out More

    Find Out More

    LEAVE A REPLY

    Please enter your comment!
    Please enter your name here