Last Updated on September 22, 2022 by Bitfinsider
As part of the fight to contain rising prices, the Federal Reserve announced another sharp increase in the benchmark US interest rate on Wednesday (Sep 21). This tough posture has stoked concerns of a recession.
The Federal Open Market Committee (FOMC), which sets the Fed’s policy, increased the rate for a third time in a row by 0.75 percentage points, continuing its aggressive course that has seen five increases this year.
The FOMC stated that it expects that “ongoing increases… will be appropriate” after the rise, which brings the policy rate to 3.0-3.25 percent.
After the Fed’s statement on Wednesday, Wall Street stocks fell and the dollar increased, erasing earlier gains.
Following the Fed press release, stocks fluctuated before Fed Chair Jerome Powell’s news conference saw a final, sharp decline. The declines in all three major indices were at least 1.7%.
Markets were surprised by the Fed’s stance regarding the necessity for additional rate hikes because they had been preparing for another significant rate increase.
The most recent Fed announcement had higher-than-predicted interest rate predictions for the end of 2023 and 2024, indicating that the US central bank now believes a longer monetary tightening cycle is necessary in light of inflation trends.
In order to calm the economy and prevent a recurrence of the 1970s and early 1980s, when US inflation last spiraled out of control, Powell has made it clear that officials will continue to act strongly in this regard.
In the 1980s, it took severe measures and a recession to ultimately drive prices down, and the Fed is unwilling to give up its hard-earned reputation for battling inflation.
Powell said the US central bank is dedicated to raising interest rates and keeping them high until inflation comes down, despite criticism that it took too long to act. However, he cautioned against changing direction too soon.
No space for complacency, he said, and the Fed will “stay at it until the job is done,” albeit depending on the data, at some point it will be prudent to limit the pace of rate hikes.
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