Including the latest rate hike, the Fed has already lifted rates by 1.5 percentage points this year, putting its benchmark interest rate at a range of 1.5% to 1.75%. In order to stabilize prices while not hurting employment, the Fed expects to increase interest rates very rapidly in the coming months. What’s a ‘soft landing’ and is it likely?Ī soft landing refers to the way that the Fed is attempting to slow inflation – and therefore economic growth – without causing a recession. The problem is, inflation is so high, at an annualized rate of 8.6%, that bringing it down may require the highest interest rates in decades, which could weaken the economy substantially.Īnd so the Fed is trying to execute a so-called soft landing.įederal Reserve Chairman Jerome Powell announced a rate hike of 0.75 percentage point on June 15, 2022. Low, and the Fed is able to focus primarily on reducing inflation. For example, when the Fed lifts its target short-term rate, that increases borrowing costs for banks, which in turn pass those higher costs on to consumers and businesses in the form of higher rates on long-term loans for houses and cars.Īt the moment, the economy is quite strong, unemployment is To do this, the Fed sets short-term interest rates, which in turn help it influence long-term rates. When the economy is strong, unemployment is typically quite low, and that allows the Fed to focus on controlling inflation. When the economy is weak, inflation is usually subdued and the Fed can focus on keeping rates down to stimulate investment and boost employment. Often policymakers must prioritize one or the other. The Federal Reserve has a dual mandate to maximize employment while keeping prices stable. A recent poll found that inflation is the biggest problem Americans believe the U.S. Investors worry the Fed may slow the economy too much in its fight to reduce inflation, which if left unchecked also poses serious problems for consumers and companies. The prospect of a faster pace of rate hikes due to inflation has prompted financial markets to plunge by over 6% since the June 10 report. Some Wall Street analysts even argued a 1-percentage-point hike was possible. But markets and Wall Street economists began to expect the larger 0.75-point hike after the May consumer price data suggested inflation has been unexpectedly stubborn. Only a week ago, the Fed had been expected to raise rates by 0.5 percentage point at the latest meeting. economy, consumers and businesses are very high. The Federal Open Market Committee, the Fed’s policymaking arm, had been pondering how much and how quickly to raise its benchmark interest rate over the coming months to fight inflation. What does this all mean? We asked Brian Blank, a finance scholar who studies how businesses adapt and handle economic downturns, to explain what the Fed is trying to do, whether it can succeed and what it means for you. The big risk, however, is that higher rates will push the economy into a recession, a fear aptly expressed by the recent plunge in the S&P 500 stock index, which is down over 20% from its peak in January, making it a “bear market.” Wall Street had been expecting a half-point increase, but the latest consumer prices report released on June 10 prompted the Fed to take a more drastic measure. The move is aimed at countering the fastest pace of inflation in over 40 years. The Federal Reserve on June 15, 2022, lifted interest rates by 0.75 percentage point, the third hike this year and the largest since 1994.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |