Cayman Islands, Caribbeanand International News
Monday, Oct 02, 2023

US Federal Reserve raises interest rates for first time since 2018

US Federal Reserve raises interest rates for first time since 2018

Fed raises rates by a quarter percentage point from near zero as central bank struggles with inflation, the war in Ukraine and Covid
The Federal Reserve has raised interest rates for the first time since 2018, as the central bank struggles with soaring US inflation, the impact of the war in Ukraine and the coronavirus crisis.

The Fed raised rates by a quarter percentage point from near zero, in what is expected to be the first in a series of raises in the coming months.

In a statement, the Fed said economic indicators and employment figures had “continued to strengthen”, but noted that inflation remained elevated and the invasion of Ukraine was not only “causing tremendous human and economic hardship” but was “likely to create additional upward pressure on inflation and weigh on economic activity” in the US.

The Fed has a dual mandate – to maximize employment and keep prices under control. The job market and the wider economy have made an impressive recovery from the lows of the pandemic, thanks in part to Fed rate cuts and a massive stimulus program, but prices have increased by 7.9% in the year through February – the highest rate of inflation in 40 years.

Supply chain issues have led to sharp increases in a variety of areas including used cars, food and utilities that are causing particular hardship for lower-income Americans.

The Fed initially dismissed rising prices as “transitory”, but has since acknowledged high inflation is likely to be around for some time. Supply problems that appeared to be normalizing earlier this year are also now feeling the impact of the war in Ukraine and face further setbacks as China imposes new lockdowns to curb new coronavirus outbreaks.

At a press conference, Fed chair Jerome Powell said the bank was “acutely aware” that it must tackle inflation. “I’m old enough to remember what very high inflation was like,” he said. “We’re strongly committed as a committee to not allowing this higher inflation to become entrenched.”

The Fed is projecting six more rate rises this year. One Fed committee member, the St Louis Fed president James Bullard, pushed for a larger half-percentage-point increase this month. “If we conclude it will be appropriate to raise interest rates more quickly, then we’ll do so,” said Powell.

Raising rates too quickly threatens to push the US into recession. This week, CNBC’s Fed Survey – which gauges the opinions of fund managers, strategists and economists – put the probability of recession in the US at 33% in the next 12 months, up 10 percentage points from the 1 February survey. The latest survey put the chance of a recession in Europe at 50%.

With inflation running at close to four times the Fed’s target rate of 2%, Powell has made clear that the central bank will raise rates in an attempt to curb rising prices. But some economists question how much impact the Fed can have on such a complex issue.

JW Mason, associate professor of economics at John Jay College, said a quarter-point rate rise was unlikely to have much impact on inflation or the wider economy. “It is a strange feature of the way we think and talk about economics today that we have given this wildly outsized importance to this one policy tool used by this one part of government,” he said.

Mason said he expected inflation would ease without the Fed’s intervention over the next year – albeit “less than we hoped it would”. He pointed out that car prices – until recently the largest source of inflation – were already falling. While he said a series of small rate rises were not likely to have a major impact overall “a sufficiently large rise in interest rates will have a substantial negative effect on real economic activity”.

Mason said other branches of government were better able to deal with price issues in the broader economy, such as soaring rents and home prices or gas and utility bills, and that tools such as price caps or stimulus cheques could be used to alleviate hardship.

Powell said he expected US inflation to ease later this year, with the Fed predicting it will end the year at 4.1%. But he reiterated that the war in Ukraine was likely to lead to supply chain disruptions and higher prices. “No matter what happens, this is a committee that is determined to use its tools to make sure that higher inflation does not become entrenched. And so we are determined on that front and will deal with what comes,” said Powell.

Related Articles

Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Israel: Unprecedented Civil Disobedience Looms as IDF Reservists Protest Judiciary Reform
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
Musk announces Twitter name and logo change to X.com
The politician and the journalist lost control and started fighting on live broadcast.
The future of sports
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
TikTok Takes On Spotify And Apple, Launches Own Music Service
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Typo sends millions of US military emails to Russian ally Mali
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
Europe is boiling: Extreme Weather Conditions Prevail Across the Continent
The Last Pour: Anchor Brewing, America's Pioneer Craft Brewer, Closes After 127 Years
Democracy not: EU's Digital Commissioner Considers Shutting Down Social Media Platforms Amid Social Unrest
Sarah Silverman and Renowned Authors Lodge Copyright Infringement Case Against OpenAI and Meta
Italian Court's Controversial Ruling on Sexual Harassment Ignites Uproar
Why Do Tech Executives Support Kennedy Jr.?
The New York Times Announces Closure of its Sports Section in Favor of The Athletic
BBC Anchor Huw Edwards Hospitalized Amid Child Sex Abuse Allegations, Family Confirms
Florida Attorney General requests Meta CEO's testimony on company's platforms' alleged facilitation of illicit activities
The Distorted Mirror of actual approval ratings: Examining the True Threat to Democracy Beyond the Persona of Putin
40,000 child slaves in Congo are forced to work in cobalt mines so we can drive electric cars.
BBC Personalities Rebuke Accusations Amidst Scandal Involving Teen Exploitation
A Swift Disappointment: Why Is Taylor Swift Bypassing Canada on Her Global Tour?
Historic Moment: Edgars Rinkevics, EU's First Openly Gay Head of State, Takes Office as Latvia's President
Bye bye democracy, human rights, freedom: French Cops Can Now Secretly Activate Phone Cameras, Microphones And GPS To Spy On Citizens
The Poor Man With Money, Mark Zuckerberg, Unveils Twitter Replica with Heavy-Handed Censorship: A New Low in Innovation?
Unilever Plummets in a $2.5 Billion Free Fall, to begin with: A Reckoning for Misuse of Corporate Power Against National Interest
Beyond the Blame Game: The Need for Nuanced Perspectives on America's Complex Reality
Twitter Targets Meta: A Tangle of Trade Secrets and Copycat Culture
The Double-Edged Sword of AI: AI is linked to layoffs in industry that created it
US Sanctions on China's Chip Industry Backfire, Prompting Self-Inflicted Blowback
Meta Copy Twitter with New App, Threads
The New French Revolution
BlackRock Bitcoin ETF Application Refiled, Naming Coinbase as ‘Surveillance-Sharing’ Partner