US Fed hiked rates on hottest cost pressure in 40 years

neerajsingh18

Jul 28

US Fed hiked rates on hottest cost pressure in 40 years

Team Ambitiousbaba are here with a Current Affairs Special Series. In this series, candidates will be introduced to current affairs topics daily, which will not only improve their general awareness but also will ensure that the candidates do not lack in any current affairs topic. Today's Current Affairs topic is "US Fed hiked rates on hottest cost pressure in 40 years"

Federal Reserve of USA, Chair Jerome Powell has hiked interest rates by 75 basis points for the second straight month. Even US Fed also signaling a similar move in future with rejection of speculation that the US economy is in recession.

The United States of America's Policy makers are facing the hottest cost pressures in 40 years and elevated the target for the federal funds rate on yesterday (i.e. 27 July) to a range of 2.25% to 2.5%.

Era of Paul Volcker:

It took the cumulative June-July increase to 150 basis points which is the steepest since the price-fighting era of Paul Volcker in the early 1980s.

US Fed Chairman Powell has also hinted out of slowing the pace of increases at some point. In addition, he said officials would adjust policy on a meeting-by-meeting basis rather than offer expressed guidance on the size of their next rate move, as he has done recently.

The latest raise makes rates near Fed policy makers' estimates of neutral which is at the level that neither speeds up nor slows down the economy. An estimation in mid-June showed officials anticipated to raise rates to about 3.4% in 2022 and 3.8% in 2023. As per the Fed those forecasts which are above market expectations had been the best current guide in which the Fed was calculating this year and into 2023.

Criticized by market:

This hiked rated decision is criticized for misjudging inflation and being slow to respond and even have also blamed to be forced for raising interest rates to cool the economy, even if that risks tipping it into recession.

Higher rates are already having an inverse impact on the US economy. The effects are the proof of the housing market in which sales have been gone down.

Unemployment situation:

Number of analysts believed that it will result into a recession with climbing unemployment to significantly slow price gains.

Consumer Price Index:

The US consumer price index heightened by 9.1% in June from a year earlier which is a four-decade high. The price gains are eating out earnings and sowing discontent with the economy.