ShreeMetalPrices: Fed raises interest rates again and hints of further gains.


The US central bank (Fed) raises interest rates once again. But cautioned that additional hikes would be required to slow the rate at which prices are rising.
According to Federal Reserve forecast, the bank’s average interest rate may exceed 5% within a year.

However, as a result of indications that the most extreme inflation in decades may be starting to reduce, officials are acting with more caution.

They concurred to an increase of 0.5% in the bank’s benchmark interest rate.
The Fed’s key rate was therefore raised to its highest level in 15 years. A target range of 4.25% to 4.5%.
But compared to recent pronouncements, it was a smaller hike.

Jerome Powell, the chairman of the Federal Reserve, stated that the bank wants to take a step back to observe how the economy was responding to the combined effect of the hikes. Which have raised the costs of credit card debt, auto & business loans, even mortgages.

He added, however, issue a warning that the increase on Wednesday was “still a historically big increase and that we still see some way to go.”

  • US price hikes slows as oil costs decrease
  • US jobs growth indicates a challenging battle against inflation

Since the US is driving a global trend to higher borrowing costs following years of low rate of interest in the wake of the financial crisis. The bank’s actions are being closely scrutinised throughout the globe.
Saudi Arabia and the United Arab Emirates were two nations that (Fed) raised interest rates on Wednesday.

The Bank of England, which has warned that the nation is experiencing its deepest recession on record, is anticipated to declare its own 0.5 percentage point rise on Thursday after authorising a significant rise last month. A similar move by the European Central Bank is imminent.

Has inflation improved?

The Fed increased rates for the eighth time this year on Wednesday.
The bank is acting in response to inflation in the United States which is still close to a 40-year high even though it has decreased since peaking at 9.1% in June, supported by a decrease in oil prices.

According to the most recent US statistics, consumer prices increased 7.1% over the last year ending in Nov, dropped from 7.7% there in October.

It would require “much more data.” According to Mr. Powell, before the bank could be confident that inflation was on a persistent downward trend. However, the bank was convinced by indicators that inflation was improving.
Although it is encouraging to see progress. He added that there is still a long way to go before prices are stable again.
The Fed hopes to slow economic growth and relieve pressures driving up prices by increasing borrowing costs.
However, decision-makers takes the risk of causing the biggest economy in the world to experience a severe economic crisis.

Fed economic forecasts

According to projections made public following the bank’s meeting, policymakers on average anticipate that the US economy would expand by just 0.5% in 2023 — far less than historical averages — and that the jobless rate will increase to 4.6%.

Even though they anticipate a decline in inflation, the majority of members believe that it will continue to be higher than the bank’s 2% aim in 2025, at 3%.

Overall, they had a more dour attitude than they had a few months prior. Which was due to worries that the easier part of the battle against inflation was finished.

According to Seema Shah, chief global strategist at Principal Asset Management. “The Fed still remains secretive about the possibility of a recession, but given that most Fed officials consider threats to be tilted to a downside. It’s fair to assume they are much more worried about economic outlook that they’re willing to admit.

In response to increased rates, some areas of the economy, like the housing sector, have already experienced significant slowdowns.

In addition, despite a robust labour market, there are worries of broader weakness.
Owner Juan Carlos Anglero of Anglero Hoodies, a small clothing business in New York, claimed to have noticed the slowdown in the form of poorer sales as rising costs reduce consumers’ willingness to spend money on non-essentials.

There is undoubtedly greater pushback than there was last year.
The Fed is under more pressure to take the cost of its actions into account.

However, Mr. Powell claimed that the bank was concentrating on inflation, which would ultimately have a much more negative impact on the economy.

He stated, “I wish there were a totally painless solution to bring back pricing stability.” Not at all. The best we can manage is this.