As expected, the US central bank – Federal Reserve – on Wednesday hiked interest rates by another 75 basis points in a bid to cool down persistent inflation. The move was on expected lines as inflation continues to be high despite previous rate hikes. On September 21, the Fed increased the rate by similar percentage points.
The US has been reeling under decades-high inflation caused by a combination of factors. The inflation number for September came in at 8.2 per cent, over four times the target set by the Fed. In September, Fed chairman Jerome Powell had said that he was strongly committed to bringing inflation back down to 2 per cent.
The Fed’s rate-setting committee – Federal Open Market Committee – said that recent indicators pointed to modest growth in spending and production. It said job gains had been robust in recent months, and the unemployment rate had remained low.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed said.
The committee further said that Russia’s war against Ukraine is causing tremendous economic hardship and the war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.
The committee stated that it seeks to achieve maximum employment and inflation at the rate of 2 per cent over the longer run. “In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4 percent,” it said.
Today’s rate hike is the fourth in a row and still, there is no indication as yet that inflation is coming down as fast as Fed would have wanted. Now the fear is that the continued rate hikes may push the country into recession.
In September, the World Bank said that as central banks across the world hike interest rates in response to inflation, the world may be edging toward a global recession in 2023 and a string of financial crises in emerging markets and developing economies.
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