On Wednesday, the FED provided a clear hint that interest rates were going to rise in March. They predict that there will be a quarter percentage point increase to its benchmark short-term borrowing rate. If this does occur, it will be the first rise in in interest rates since December 2018. The reason for these high interest rates is because of the highest inflation rate that the U.S. has seen in 40 years. Due to all of these factors, the FED has indicated that the Central bank's bond buying will end in March at the same time as the interest rate increase. Currently, the FED is likely to reduce their bond holdings. They hold over $9 trillion which has bloated its balance sheet greatly. Unfortunately, the FED does not meet in February which is why we will not know the interest rate increase until March. The markets will likely react to the foreshadowed increase in interest rates.
Fed decision January 2022: Federal Reserve points to interest rate hike coming in March (cnbc.com)
Highest inflation rate that the U.S. has seen in 40 years. That definitely sticks out to me as a major economic indicator for the U.S. Inflation coming to this country could be a scary sight but as you've seen the FED will play their hand in this rising inflation.
ReplyDeleteAs seen through the news, we know interest rates have been extremely high due to inflation. Consumer spending will decrease if inflation and interest rates are high because nobody will want to take out loans. Inflation increases the prices of any good which would make consumers not want to spend as much which could decrease GDP as a whole
ReplyDeleteI believe that increasing the interest rate is a must in order to counter the record high inflation that we are facing. This will be the first step in decreasing the high prices that we are currently facing in the market, but this also will result in more uncertainty in the stock market. It will be interesting to see how the economy will respond to the increase of interest rates.
ReplyDeleteI thing the FED raising the interest rates is a certain. You can already see the repercussions in the stock markets from the anticipation of these rate hikes. Jerome Powell also admitted to congress in December that inflation has risen past what the FED thought it would, and showed no sign of stagnating. Hopefully these hikes on the rates will help reduced the burden on households that have been dealing with inflation for a while now.
ReplyDelete