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Fed increases the critical rate by a half-point and anticipates future increases

By 12/14/2022 10:02 PMNo CommentsBy YidInfo Staff

The Federal Reserve increased its benchmark interest rate for the seventh time this year on Wednesday and hinted at further increases as part of its effort to combat inflation.

But when inflation began to ease, the Fed issued a lesser raise than it had in its previous four meetings.

The Fed raised its benchmark rate by a half-point, bringing it to its highest level in 15 years, between 4.25% and 4.5%.

The most recent change will substantially increase the costs of many consumer and company loans and the danger of a recession, albeit less than its previous three-quarter point hikes.

The decision-makers anticipate that by the end of 2023, their primary short-term rate will be in the 5%–5.25% range.

According to this indication, the Fed may be willing to increase its benchmark rate by additional three-quarters of a point and hold it there until the end of the current year. Some economists had predicted that the Fed would only forecast a little hike of 0.5 points.

At a news conference, Chair Jerome Powell noted that the inflation numbers for October and November indicated a welcome decline.

But it will need much more proof to be confident that inflation is on a steady path.

Wall Street was dismayed by the possibility of higher borrowing rates than anticipated.

Stock prices soon began to decline due to investors.

One day after an upbeat report revealed that US inflation dropped for a sixth month in November, the latest rate hike was announced.

Although still robust, the year-over-year growth of 7.1% was much lower than the most recent peak of 9.1% in June.

In their latest predictions, the Fed’s officials expected weaker growth and higher unemployment for 2024. By the end of 2023, the unemployment rate is expected to increase from 3.7% to 4.6%.

That would indicate a sharp rise in unemployment, which often means a recession.

The officials also predicted that the economy would barely develop next year, expanding just 0.5%, less than half the prediction they had given in September, which is consistent with a steep slowdown.

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