Wednesday, March 16, 2022, the Federal Reserve announced short term interest rates would be raised by 25 basis points or .25%. This now brings the Federal Funds Rate to between .25%-.5%. Since inflation is currently so high, the Federal Reserve is hoping that this increase in the interest rate will lower the high demand our economy is currently facing, which will help lower prices and in turn, lower inflation.
In addition to this, projections from the Federal Open Market Committee are signaling that interest rates will continue to be increased up to six more times in 2022, which would bring interest rates to around 1.75% higher at the end of 2022 compared to the end of 2021. Because of the current instability in the economy, caused partially by the war in Ukraine and already high inflation at home, this policy is more aggressive than previously considered by the Fed, who in December only projected three rate hikes in 2022, instead of its current projection of six.
The Fed now projects that inflation will be around 4.3% for 2022, which is higher than previously projected in December (2.6%). In 2023, the Fed predicts inflation to be around 2.7%, and to be 2.3% in 2024, meaning that the Fed expects the rapid inflation we are currently experiencing to slow down over the coming months and years. In order to reach these goals, the Federal Open Market Committee is expecting short term interest rates to be around 2.5%-3% by the end of 2024.
I'm curious to see if the FED actions in raising the interest rates will be successful. There's a lot going on in the world with the Russia, Ukraine war, and the Chinese lockdowns, and I wonder if the FED will do enough to handle the chaotic economic climate.
ReplyDeleteGiven the current political situation that threatens the economic markets, it will be interesting to see how this increase in interest rates affects the markets and US economy.
ReplyDeleteI wonder if the conflict with Ukraine and Russia will impact FED's plan of 6 interest rate increases.
ReplyDeleteEveryone expected the Fed to raise the interest rate. Consequently, market reacted pretty good on the raise. With current problems in the world, the inflation rate will exceed expected projections
ReplyDeleteThe rise in the interest rates will have the objective of combating inflation, but given the issues that are occurring in the world I see inflation not slowing down as the effect of seniorhage from the pandemic will leave a mark and influence the strength of the U.S. dollar for a while
ReplyDeleteHonestly, the move is expected but it's hard to tell if it's going to really help that much. Obviously they had to raise the interest rate again at some point, but given the causes of the current inflation we're experiencing in the US, it might not make as much of a dent in the issue as we would hope for.
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