Wall Street eyes Fed interest rate hike

The market expects a quarter of a percentage point to be added to the benchmark rate, taking it above zero. This would be the first rate hike since the end of 2018.

The Fed hopes that higher rates will dampen demand and help bring soaring US inflation back to a more acceptable level and toward the central bank’s long-term 2% target.

But it comes at a tricky time.

Even though the US economy has rebounded strongly from the pandemic recession, rising energy prices in the wake of Russia’s war in Ukraine is another dark cloud on the horizon.

Raising rates while ensuring the economy continues to grow is the latest challenge for Fed officials who have spent the past two years navigating between coronavirus shutdowns and the world’s worst labor market shock. ‘story.

Federal Reserve Chairman Jerome Powell has warned that the war could fuel inflation and cause households to cut spending. But he also said the dispute hasn’t changed the central bank’s thinking on interest rates.

“To ensure the economy continues to grow and avoid recession, I think it’s important to normalize interest rates,” Moody’s Analytics chief economist Mark Zandi told the court. House Financial Services Committee. Last week.

“The bottom line for low- and middle-income households is to avoid recession,” Zandi said.

It’s easier said than done. Goldman Sachs (GS) Economists said last week that the likelihood of a recession in the United States within the next year had increased by 35%. The investment bank sees little to no growth in the first three months of 2022.

Low-income households already struggling with high prices would be hit hard by a downturn.

The pandemic inflation trend started with products and services linked to high demand and supply chain disruption, such as cars. But higher prices quickly spread throughout the economy. In the year ended February, consumer prices in the United States rose 7.9% without seasonal adjustments, the Bureau of Labor Statistics reported last week. This is the largest increase since January 1982.

With food and gasoline prices rising rapidly, the Fed has no choice but to act.


cnn

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