The Federal Reserve on Wednesday approved its first rate hike in over three years. It was an incremental move to tackle increasing inflation without destabilizing the growth of the economy.
Conflict in Ukraine could increase inflation and harm U.S. economy in the short term, the central bank officials say.
The Federal Open Market Committee has kept the benchmark interest rate at or near zero since the start in the Covid disease and the subsequent policymaking Federal Open Market Committee said they will increase rates by a quarter percent point or 25 basis points.
Inflation is at an all-time high of 40 years at 40 years, the Fed is moving aggressively away from its previous two-year stimulus stance, which helped cushion economic growth during epidemic.
The Fed currently sees its policy rate soaring to 1.9 percent by the end of the year. Then, it will increase to 2.8 percent in 2023, and maintaining that rate until 2024. Rates that are 2.8 percent would begin to slow economic growth according to Fed calculation.
The Federal Reserve said it would increase interest rates, and has planned a series of additional increases in the coming year, in order to stop the economy from becoming overheated and reducing inflation, which is at its highest level for the past four decades.
Fed Chair Jerome Powell had telegraphed the rate hike earlier in the month. There was a dissent which was St. Louis Fed President James Bullard arguing for a 50 basis point rate increase.
Powell added that “every meeting was a live meeting” to discuss rate hikes. Powell also noted that 50 basis points moves further down the road can’t be excluded.
Powell stated that his opinion that Russian invading Ukraine could be detrimental to both the U.S. economy in the near term and already puts pressure on inflation to increase because of higher prices for oil.
The war is also likely to cause disruption to already stretched supply chains, which are a major reason for the sudden rise in prices. It may delay a decrease in the rate of inflation until 2022.
U.S. stocks climbed in an up and down session on Wednesday. The indexes initially trimmed their gains following the announcement of Fed’s decision, but then rising after Powell’s press conference. Bond yields increased.
In a statement on the Fed Reserve’s policy on today, Psaki appeared to pivot and suggested that his belief that Russian intervention in Ukraine may have played major roles in the record-breaking inflation rate.
“We continue to believe that the United States economy is positioned well to deal with the challenges ahead, even as we continue to monitor. Obviously there are events that impact the economy, including an invasion of a foreign country, and we’re seeing that impact as well play out in the economic data,” Psaki said.
The President’s Federal Reserve Board nominees, including Chair Powell and Vice Chair Lael Brainard, were referred before the entire Senate on Wednesday night following an approval vote by the Senate Banking Committee.
It was only announced following Sarah Bloom Raskin’s decision to withdraw her candidacy following Senator. Joe Manchin, D-WV. He announced his objection to her candidacy earlier this week, which allowed the other candidates to go forward.
- Fed Raises Interest Rates for First Time Since 2018: Latest News The Wall Street Journal
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