The US Federal Reserve System: future key rate hikes will be defined "from meeting to meeting"

The US Federal Reserve System: future key rate hikes will be defined "from meeting to meeting"

Jerome Powell, Chair of the Board of Governors of the US Federal Reserve System, indicated that the stance of the Central Bank with regard to combating growing inflation by raising the key rate will be determined privately, from meeting to meeting, based on indicators for the past period.

Jerome Powell made this statement on Wednesday, June 22, responding to concerns that the Fed's policy of fighting against inflation could lead to a deep economic recession.

Key attention will be paid to the increase and decrease in inflation and the speed of these changes. According to him, decisions will be based on clear market and economic statistics.

Decisions concerning rate increases have been made regularly since March 2022. In the first month, it was raised by a quarter point, and by half a point in May. In the middle of June, the growth was one-third of one percentage point. These high increases have scared many investors and market players away. It led to a sharp decline in financial performance.

At the moment, inflation growth in the economy has already reached 40-year highs. The decision to raise the key interest rate by a third of a point resulted in an increase from 1.5% to 1.75%. The Federal Reserve states that, in general, a higher pace of rate hikes should be expected. By the end of 2023, the key rate should reach 3.8% becoming the highest rate in the last 15 years.

Market fears rely heavily on the fact that tightening of credit conditions can eventually lead to an economic recession that is supported by endless credit flows. Goldman Sachs says there is a 30% chance that the recession will hit within the next year and a 48% chance that it will happen within the next two years.

Another criticism comes from the opposite side. Senator Thom Tillis, a representative of the Republican Party in the House Banking Committee, accused Jerome Powell of taking too long for the Federal Reserve to raise the key rate. It made this instrument rather ill-timed. It was too late for the moment when it could be most useful.

The Fed’s policy remains rather unclear in the coming months, as it becomes a hostage to the upcoming mid-term elections for the United States House of Representatives and the Senate.

Some experts point out that the actions of the Federal Reserve can only reduce market demand, but it will not be enough to fight inflation. At the same time, it is guaranteed that the current policy will lead to rising unemployment and a general decline in economic growth.

Today, the interest rate on one of the most popular 30-year fixed-rate loans has reached 5.8 points.

It is expected that the Fed will raise the key rate by another third of a point next month. In September, this increase will be half of one per cent.

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