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HomeBusinessUS federal reseve raises interest rates, leaves door open to hike.

US federal reseve raises interest rates, leaves door open to hike.

On Wednesday, the Federal Reserve increased interest rates by a quarter of a percentage point, citing persistently strong inflation as justification. This resulted in the highest US central bank policy rate in sixteen years.

The rate increase, which was the 11th by the Fed in its previous 12 meetings, raised the benchmark overnight interest rate to a range of 5.25%–5.50%, and the accompanying policy statement left the door open for another increase.

Despite inflation figures that have been worse than anticipated since the Fed’s meeting in June, policymakers have been hesitant to soften their hawkish approach until there has been more success in reducing price pressures.

According to Kathy Bostjancic, chief economist at Nationwide, “the forward guidance remains unchanged as the committee leaves the door open to further rate hikes if inflation does not continue to trend lower.” “In our opinion, the Fed is likely finished raising rates for this cycle because further deflationary pressures will passively result in tighter monetary policy as the Fed maintains the nominal fed funds rate steady through 2024.”

The yields on the two-year and 10-year Treasury notes both slightly decreased before slowly rising back to the levels they had been at just before the announcement of the Fed’s policy statement. US markets barely reversed earlier declines. Futures markets indicated that expectations for the trajectory of Fed rate rises over the course of the rest of the year had not altered significantly, with a minimal chance of a rate increase in September.

Modest growth

Key inflation indicators continue to exceed the Fed’s goal level, and despite the economy continuing to beat forecasts given the sharp rise in interest rates, the unemployment rate is still low at 3.6%.

The Fed noted that job growth is still “robust” and that economic expansion is now progressing at a “moderate” rate rather than the “modest” rate that had been anticipated at the June meeting. According to experts surveyed by Reuters, the US government is anticipated to announce on Thursday that the economy expanded at a 1.8% annual pace in the second quarter.

This rate hike may be the final one in a process that started with a cautious quarter-percentage-point increase in March 2022 before accelerating into the most rapid monetary tightening since the 1980s. There are, however, about eight weeks until the next Fed meeting, a longer-than-usual interlude.

At 2:30 p.m. EDT (1830 GMT), Fed Chair Jerome Powell will attend a press conference to further discuss the decision and policy statement and maybe reveal additional information about what might influence the central bank to either boost rates again or not.

In their most recent economic forecasts, 12 out of 18 Fed policymakers predicted that by the end of this year, at least one additional quarter-percentage-point hike would be required.

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