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Aggressive rate hikes continue, MT4.MT5 Financial News
发布时间：2022-08-25 浏览：116
On July 27, local time, the Federal Reserve announced to raise interest rates by 75 basis points, raising the target range of the federal funds rate to between 2.25% and 2.5%. This is the second consecutive month of 75 basis points of interest rate hikes by the Fed since the largest single rate hike since 1994 in June, and the fourth time the Fed has raised interest rates this year.
Although the Fed said it was raising interest rates to control stubbornly high inflation, many analysts worry that the Fed's aggressive interest rate hikes will cause shocks in various areas of the economy, and American consumers will pay the price.
The Price of Fighting Inflation: A Slowing Economy
The Federal Open Market Committee, the Fed's decision-making body, issued a statement after the end of a two-day monetary policy meeting on the 27th, saying that inflation remained high, reflecting supply chain problems, rising food and energy prices, and broader price pressures. The Committee will remain firmly committed to returning inflation to its 2 percent target, with a strong focus on inflation risks, and it is expected that continued increases in the target range for the federal funds rate will be appropriate.
Fed Chairman Jerome Powell told a news conference after the meeting that another sharp rate hike at the next meeting in September may be appropriate, but that would depend on economic data between now and then. And as the stance of monetary policy tightens further, the pace of rate hikes will be slowed at some point as the Fed assesses the impact of the cumulative policy adjustments on the economy and inflation.
Powell also acknowledged that the Fed's efforts to curb inflation could cost the U.S. economy, especially the labor market. Economic growth will slow this year, possibly below the long-term trend for some time. He also cited some signs of cooling in consumer spending, hiring and housing market activity.
Analysts believe the Fed is raising rates at its most aggressive pace since the 1980s. Including the 75 basis points of this rate hike, the rate hike since March has been comparable to the rate hike from 2015 to 2018, and the federal funds rate has also risen to the level three years ago, reflecting the Fed's current rate hike. The urgency of fighting inflation.
The market generally believes that the Fed is curbing inflation at the expense of slowing economic growth.
Some critics pointed out that the U.S.’s own fiscal and monetary policies are to a certain extent responsible for this round of inflation. The Fed was slow to respond due to misjudging the situation at first, and now it is forced to aggressively raise interest rates in order to curb inflation, which will inevitably drag on. economic growth and even heighten the risk of recession.
U.S. consumer confidence slumps
Despite the Fed's continued aggressive interest rate hikes, the US inflation situation has not improved. According to data previously released by the U.S. Department of Labor, the U.S. consumer price index (CPI) rose by 1.3% month-on-month in June this year and a year-on-year increase of 9.1%, far exceeding market expectations and the highest year-on-year increase since November 1981.
U.S. consumer confidence remains low as Americans worry about inflation. According to data released by the World Large Business Research Council on July 26, the U.S. consumer confidence index fell to 95.7 in July from a revised 98.4 in June, the lowest level since February 2021.
Since personal consumption expenditures account for about 70% of the U.S. economy, many analysts worry that low consumer confidence will lead to a decline in consumer spending, which will drag down U.S. economic growth and further increase the risk of recession.
At the same time, against the backdrop of aggressive interest rate hikes by the Federal Reserve, rising mortgage interest rates are also increasing the cost of home purchases and impacting U.S. consumer confidence. The National Association of Realtors' housing affordability index fell to 102.5 in May, the lowest level since July 2006, raising concerns about the housing market.
Bob McNabb, a professor of economics at Old Dominion University, said in an interview with a reporter from the main station: "Because consumer wealth is usually concentrated in housing, it means that they are very worried about possible changes in housing prices. In other words, if we start U.S. consumers will significantly scale back their spending in the coming months as they see single-family home values fall. The Fed is basically in a dilemma, it needs to rein in inflation and increase the cost of money to reduce consumer demand, but in doing so, it It will slow economic growth.”