Is the United States heading for a 1% interest rate hike?
interest rate hike

Is the United States heading for a 1% interest rate hike?

It has been reported that there is increasing pressure on the US Federal Reserve to take even more aggressive action with interest rate increases.

This comes after a report was released by the US Bureau of Labor Statistics (BLS) showing that inflation across the country hit a new 40-year high in the year to June. Consumer price increases have risen to a higher level than had been predicted by industry experts, with figures showing they increased to 9.1% last month.

The figures mean that inflation in the United States now stands at its highest since November 1981. The situation has left many Americans struggling to make their finances stretch far enough. According to the BLS, the price increases were seen across most services and products, and Americans are now finding it an uphill struggle to keep up with the cost of food, fuel, rent, and healthcare.   

Related article:   Bank considers biggest rate hike in 25 years

Consumer prices are being affected by various factors, including the impact of the Covid-19 pandemic, high demand coupled with supply issues, and the war in Ukraine. As a result of the new data from the BLS, the US Federal Bank is under mounting pressure to take action.

A steep increase on the horizon

In June, the US Federal Reserve increased its base rate from 1% to 1.75% with a 75-basis point hike. However, given the most recent inflation figures, many believe that the central bank will need to go further and increase rates by an entire percentage point at the end of July.

Related article:   Is pandemic reopening to blame for soaring inflation and rate hikes?

While economists have been predicting an increase of 0.75% for the second month in a row, some have now changed their stance on the back of these figures and believe the central bank will take more aggressive action.

interest rate

Richard Carter, head of fixed interest research at Quilter Cheviot, said: “US consumer prices have breached 9%, hitting 9.1% in the year to June. We now have to question just how close we are to the peak. A 0.75% hike from the Federal Reserve at its next meeting is an absolute certainty and there may even be pressure from some quarters for it to do more. Central banks are clearly struggling to get a handle on inflation and if this number continues to grow or hover around this level, then more will be required to drive it down, regardless of the economic consequences this may have.”

Related article:   What is an initial interest rate?

With households already under massive financial pressure due to rising living costs, such a steep increase could have dire consequences for many. Those who are still repaying variable rate mortgages or due to come off fixed-rate deals in the near future could find themselves unable to make ends meet financially.