May 18, 2022

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The Federal Reserve raises interest rates for the first time since 2018

The Federal Reserve raises interest rates for the first time since 2018

This move marks the end of the Fed Easy money policy in the era of the epidemic comes amid a sharp rise Inflation across America. The fed funds rate is now 0.25-0.5%.

“We feel the economy is very strong and we will be able to tolerate tighter monetary policy,” Federal Reserve Chairman Pro Tempor Jerome Powell told reporters during the press conference following the meeting on Wednesday.

The The quarter-point increase was well communicated by the central bank, which Powell has alluded to repeatedly over the past few months. Earlier this month, he He told lawmakers He preferred a quarter point increase.
This is the first price increase since December 2018 and the first time prices have moved From its near zero level since the bank cut it Almost exactly two years ago in March 2020 In the wake of the epidemic.

Prices have risen over the past year for the majority of Americans, pushing inflation well above and forcing the Fed’s long-term 2% target. The central bank has a dual mandate to keep prices stable and employment at a maximum.

But during the pandemic, prices have soared on the back of rising demand, supply chain chaos, and rising energy costs. At first, Powell referred to epidemic inflation as “temporary” inflation by stop using the term During a congressional hearing last November.

Powell said that all expectations of factors that could lower inflation — such as an improvement in supply chain deadlocks and an increase in labor force participation — did not materialize. So the Federal Reserve had to act.

For the year ending in February, Consumer prices rose 7.9%.While the prices obtained by American producers for their goods It increased by 10% over the same period. Neither figure is adjusted for seasonal fluctuations.
Meanwhile, the The recovery of the labor market in the United States This came quickly on the heels of the shutdown shock in spring 2020, which marked The biggest job loss in history. As of February, the nation was still short 2.1 million jobs Compared to the same month two years ago.

Between a strong labor market and high inflation, only half of the Fed’s mandate has been fulfilled.

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What will the Fed do next?

It also included a policy update on Wednesday a A new set of forecasts from the central bank, which shows that Fed officials expect an average federal funds rate of 1.9% by the end of this year, before raising it to 2.8% in 2023. But the Fed could also raise rates faster, if inflation isn’t moderately. The central bank has six meetings remaining this year. The next date is set for 3-4 May.

Central bankers also revised their inflation forecasts down to an average of 4.3% by the end of the year, compared to the 2.6% forecast in December.

Meanwhile, US economic growth has fallen to an average of 2.8% this year, from the 4% expected in December.

Powell said on Wednesday that the fallout from the Russian-Ukrainian conflict will hit the US economy and already put upward pressure on inflation.

“The implications for the US economy are highly uncertain, but in the near term, the invasion and related events are likely to put additional upward pressure on inflation and weigh on economic activity,” the Fed said in a statement on Wednesday.

But there is no cause for concern yet.

“We think that’s going to hurt the GDP somewhat; 2.8% is still really solid growth,” he said. “We feel the economy is very strong and we will be able to tolerate tighter monetary policy.”