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Fed Reserve rate hike, US recession and impact on World - Dailyforextrading

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Fed Reserve rate hike, US recession and impact on World - Dailyforextrading

Fed hikes interest rates by 0.75 percentage point for second consecutive time to fight inflation

The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

Markets largely expected the move after Fed officials telegraphed the increase in a series of statements since the June meeting.

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Stocks hit their highs after Fed Chair Jerome Powell left the door open about its next move at the September meeting, saying it would depend on the data. Central bankers have emphasized the importance of bringing down inflation even if it means slowing the economy.

“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” Powell said.

Full recap of the Federal Reserve’s rate hike and Powell’s market

The major averages surged as Federal Reserve Chair Jerome Powell spoke at his press conference on Wednesday and suggested the central bank could slow the pace of its hikes.

The S&P 500 added 2.6% to close at 4,023.61. The tech-heavy Nasdaq Composite gained nearly 4.1% to end at 12,032.42. The Dow Jones Industrial Average leaped 436.05 points, or 1.3%, to end at 32,197.59.

The 10-year Treasury yield ended the day little changed.

Jerome Powell has signaled that the Fed is aware of the negative impact of its rate hikes on the economy, which is boosting stocks on Wednesday afternoon, according to a strategist at BlackRock.

“I think the reason this is providing some relief to the equity market is the Fed is acknowledging that there can be an impact on growth, to the economy, based on their policy,” said Gargi Chaudhuri, head of BlackRock’s iShares investment strategy, Americas.

“They’re recognizing there are two sides of this – there’s a growth tradeoff to fight inflation. The recognition is something we heard today that we didn’t hear before.”

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Powell said that the Fed could slow rate hikes in the months ahead and said that there could be some more financial tightening “in the pipeline” from the hikes that have already been made but maybe haven’t taken full effect yet throughout the economy.

Another big Fed rate hike is here to battle inflation

With prices rising at their fastest pace in a generation, the Federal Reserve is ratcheting up its fight against inflation.

On Wednesday, the Fed raised its benchmark interest rate by additional three-quarters of a percentage point. This is the fourth time the central bank has raised rates this year.

It follows an increase of the same size in June — rate hikes at this pace and magnitude have not occurred since the late 1980s.

Despite these fast and furious moves, the central bank has its work cut out for it. Its goal is to rein in inflation without kickstarting a recession.

"The labor market is extremely tight, and inflation is much too high," Fed Chair Jerome Powell said at a news conference, where he explained the "unusually large" move up in rates.

He and his colleagues are trying to fight inflation by tackling demand. They are pushing up the cost of of credit — what consumers and companies pay to borrow money — and they are trying to deal with a jobs market the Fed chair has called "unsustainably hot," where wages are rising fast because many businesses are paying more to find workers.

Federal Reserve issues FOMC statement

Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low.

Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.

The Federal Reserve just raised interest rates 75 basis points

The Federal Reserve raised its benchmark interest rates by 75 basis points on Wednesday, the latest in a series of rate hikes intended to cool the economy and bring down inflation.

For all Americans, higher interest rates carry weighty financial implications. Main Street business owners are no exception, as the higher interest rates will flow through to the cost of business loans from lenders including national, regional, and community banks, as well as the Small Business Administration’s key 7(a) loan program.

Even more significant may be how the economic slowdown being engineered by the Fed influences consumer demand and the growth outlook for Main Street.

With the odds of recession mounting as a result, at least partially, of the recent series of Fed rate hikes, the cost to be paid by Main Street isn’t limited to a bigger monthly debt interest payment and higher cost on new loans.


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