The Fed raises rates by 0.75 points

Spread the love

The Fed raises its rates of 0.75 point

Fed Leaders believe that further rate increases are to be expected.

The U.S. Federal Reserve (Fed) again raised its key rate by three-quarters of a percentage point on Wednesday for the third straight time. And the federal institution “anticipates that additional increases will be necessary”.

Rates are now in a range between 3% and 3.25%, while the & #x27;Inflation is now expected at 5.4% this year, down from 5.2% previously expected.

The Fed now expects near-zero growth for 2022 ( +0.2%), compared to 1.7% forecast in June.

Institution officials estimate they will raise their benchmark rate to 4.4% by the end of the year, a full percentage point higher than what is expected. was expected last June.

In 2023, this rate is expected to reach 4.6%, the highest level since 2007.

The Federal Reserve's move follows the release of a government report last week showing that price increases continue to mount across large swathes of the economy, and that those increases are continuing. on the side of rents and other services, even as other factors normally fueling inflation, such as the price of gasoline, had lost their intensity.

< p class="e-p">By raising its borrowing rates, the Fed is making it more expensive to take out mortgages, to buy a car, or to finance a business.

Consumers and companies are then expected to borrow and spend less, which would slow the pace of the economy and lower inflation.

When Fed Chairman Jerome Powell said at a press conference that before the Federal Reserve plans to end their rate hike, they want to have firm confidence that inflation is returning to their 2% target.

Fed officials say they are aiming for a soft landing, under which they manage to slow growth enough to calm inflation, but without overdoing it, and thus triggering a recession.

However, more and more economists are saying that the Fed's high rates will eventually lead to job losses, which will increase the unemployment rate, in addition to triggering a real recession later this year, or early 2023.

No one knows if this process will lead to a recession, or if so, how big that recession would be, Powell continued. It will depend on how quickly we manage to reduce inflation.

Jerome Powell, Chairman of the US Federal Reserve

In their new economic forecast, Fed officials not only expect near-zero growth for 2022, but also an increase in the unemployment rate by the end of 2023 to 4.4%, compared to 3, 7% right now.

Historically, economists say, every time the unemployment rate has increased by half a percentage point over several months, a recession has always followed.

The powerful institution has hammered it: the fight against inflation is its priority. Letting it take hold would imply even more painful measures for households and businesses, as was the case 40 years ago, after years of soaring prices sometimes approaching 15%.

Gasoline prices have stopped rising or even fallen all over the United States.

The US Federal Reserve, like its counterparts around the world, is trying to rein in inflation caused by supply chain disruptions related to COVID-19, and exacerbated by rising energy and food prices with the war in Ukraine.

>

Many of them are meeting this week, in particular, on Thursday, the Bank of England (BoE) and that of Japan (BoJ). On Tuesday, the bank of Sweden, the Riksbank, had created the surprise with an unprecedented increase of one point.

At the beginning of September, the European Central Bank (ECB) had raised its rate of three-quarters of a percentage point, unheard of.

The Bank of Canada is not to be outdone; it also raised its policy rate by three-quarters of a point on September 7 to 3.25%.

With information from Agence France-Presse, and Associated Press

Previous Article
Next Article