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US Fed raises interest rate by a further 0.75 pts to curb inflation

US Fed raises interest rate by a further 0.75 pts to curb inflation

The U.S. Federal Reserve has reportedly raised its benchmark policy rate by another 0.75 percentage points in an effort to reign in the skyrocketing inflation in the country, which came at 8.3% in August.

As per reports, the move was the third consecutive instance of the Fed raising the rates to control inflation.

The Federal Open Market Committee is expected to increase the federal funds rate to a new range between 3% and 3.25% after it held a two-day policy meeting, becoming the bank’s most aggressive monetary tightening campaign since the 1980s.

Earlier this month, the European Central Bank (ECB) increased its rate by 0.75% after having raised rates by 0.50% in July, with Christine Lagarde, President of ECB, saying that eurozone borrowing costs will further hike in the coming months.

The Federal Reserve will also be issuing a compilation of its officials’ interest rate projections, also known as dot plot, for the period through 2025-end, showing their commitment to the ‘higher-for-longer’ policy approach. This will include more hikes for this year, bringing the funds rate to around 4%.

Economists are expecting further rate hikes that will go into the next year, bringing the fed funds rate near 4.5%, with Fed watchers adding that officials most likely will not cut policy rate before 2024.

Earlier in June, when the predictions were updated, officials predicted the rate to reach 3.4% by the end of this year, and 3.8% the next year, and would decline in 2024. It should be noted that the median estimated unemployment rate was 3.9% for 2023 and 4.1% for 2024.

However, the unemployment rate is projected to go higher at a faster rate, with the median estimate now likely to surpass 4% next year.

Jay Powell, chairman of the Federal Reserve, said that the bank will need a sustained period of below-trend growth in order to mitigate price pressures, indicating that the officials’ gross domestic product predictions will be revised lower as well.

In June, policymakers expected inflation to come down to the central bank’s target of 2%, with growth dropping to just 1.7%.

Analysts now expect that the US economy may fall into recession next year.

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Pooja Sharma

Pursuing her professional career as a content writer for over two years now, Pooja Sharma is endowed with a post-graduate degree in English Literature. The articles that she writes are a balanced blend of her ever-growing love of language and the technical expertise that she has gained over the years. Currently Pooja pens insightful articles for Newsorigins and numerous other websites, covering subjects such as business, finance, and technology.