The US Federal Reserve has announced another significant interest rate hike to try and tackle soaring inflation. The Fed has increased interest rates by 75 basis points, the second such hike in as many months. According to reports, policymakers voted unanimously for the supersized rate hike.
Just six months ago, many would never have imagined a series of significant rate increases such as these. However, the situation with soaring living costs in the world’s biggest economy has forced the central bank to take aggressive action, which is being mirrored in other nations across the globe. Rate increases have been ongoing since March in the United States, and there are now fears that the country could fall into recession.
US economy continues to shrink
Many industry experts expect data to show that the economy in the United States has shrunk for the second consecutive quarter. While this is not considered a recession in the United States, it would be regarded as such in some other countries.
Recent figures have shown a drop in consumer confidence levels, a slower property market, a rise in jobless claims, and business activity contraction for the first time since 2020. All of this adds up to bad news for the US economy.
Federal Reserve Chairman Jerome Powell spoke about the situation at a recent press conference. He said that although the economy was already slowing, the central bank would continue to hike interest rates in the coming months due to inflation, which is now at its highest level in four decades.
He added that the Federal Reserve was not trying to cause a recession and that some level of slowdown in the economy was necessary. Powell said: “Nothing works in the economy without price stability. We need to see inflation coming down…That’s not something we can avoid doing.”
Earlier this week, the International Monetary Fund warned that the global economy might be on the verge of recession. The IMF called for more aggressive action from central banks to increase interest rates to control inflation and bring it down toward target levels. One IMF official, Pierre-Olivier Gourinchas, said that central banks worldwide now had little choice but to increase interest rates.
Federal Reserve Chairman Jerome Powell spoke about the situation at a recent press conference. He said that although the economy was already slowing, the central bank would continue to hike interest rates in the coming months due to inflation, which is now at its highest level in four decades.
He added that the Federal Reserve was not trying to cause a recession and that some level of slowdown in the economy was necessary. Powell said: “Nothing works in the economy without price stability. We need to see inflation coming down…That’s not something we can avoid doing.”
Earlier this week, the International Monetary Fund warned that the global economy might be on the verge of recession. The IMF called for more aggressive action from central banks to increase interest rates to control inflation and bring it down toward target levels. One IMF official, Pierre-Olivier Gourinchas, said that central banks worldwide now had little choice but to increase interest rates.
Other central banks hiking rates
Other central banks have also been hiking rates at an alarming pace, including the European Central Bank and the Bank of England. The BoE has consistently increased interest rates since December with 0.25% hikes. However, many believe the next rate increase will be a bigger one of 0.5%.
Mr Gourinchas said, “Most central banks are tightening monetary policy. The big question looking ahead is how quickly can this monetary tightening bring back inflation to reasonable levels.”