Fed chair Jerome Powell says “the economy can handle multiple hikes without slipping into a recession.
Based on yesterday’s Fed meeting, we have come to realize that the condition of rising interest rates was somehow encouraging for the policymakers. Due to the decline in the COVID cases and the strong, and stable consumer demand, the central banks were ready for higher rates of interest.
Yet, there is one concern that remains a source of trouble. According to the February inflation report, consumer prices rose 7.9%. Worse than that, the inflationary pressure was worse than we imagined. The War in Europe has caused a sharp increase in gasoline prices and precious materials, and that is adding more fuel to the inflation flames.
Now, experts are talking about upcoming shortages in the global supply chain and in food supplies. Therefore, for these reasons, the Fed might increase interest rates six more times this year. ZAs Goldman predicted there would be seven hikes in 2022, with a 25 basis point hike in each hike. On top of that, all meetings are subjected.
A short time after the Fed meeting ended, Fed chair Jerome Powell conducted a press conference. At the conference, Powell said that our economy can now handle multiple hikes as long as we can maintain the threat. He also added that there will be many hikes this year, and the economy can handle them without getting into a recession.
Powell’s words brought some comfort and relief for traders and investors because it was everyone’s concern to avoid rescission. So it’s official: the Federal Reserve raised key short-term interest rates for the first time since 2018.
Moments after the decision went public, the stock market fell a bit as a reaction to the Fed decision. The Dow Jones fell, the S&P slipped, and the Nasdaq composite nearly lost its gains. Yet, the stock market closed yesterday in a positive position. The Dow index closed at 519 points, the S&P rose by 95 points, and the Nasdaq closed up at 489 points.
Now economists are debating the probabilities of further hikes. Will all hikes remain the same or might the Fed become more aggressive? Powell, the Fed chairman, assured Congress at their most recent meeting that he supports a 25% interest rate hike. Some suggest that the next hike will be the same as the March hike.
All things considered, the rise in the consumer index, energy prices, food prices, and the unknown consequence of the war between Russia and Ukraine are all factors considered as economic trends that could play a major role in future hikes.
More hikes and large hikes usually mean trouble for money borrowers and small bossiness. That is what is troubling traders and economic experts. In theory, interest hikes can slow the inflation momentum, but it has their disadvantages as well. Borrowing services will ask for more interest from its borrower and will make it nearly impossible to borrow money, especially for those on a mid-low income.
As for spending abilities, higher interest rates might shrink spending abilities for the average consumer. These two are one of the disadvantages of raising interest rates, yet it is still the right course of action to accrue to the Fed officials.
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