Fed Anticipated to Make Biggest Interest Rate Hike Since 2000 as US Inflation Worsens

© Chris WattieThe Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018.
The Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018. - Sputnik International, 1920, 02.05.2022
Subscribe
International
India
At an April 21 seminar hosted by the International Monetary Fund, Chair of the US Federal Reserve Jerome Powell said reducing inflation to 2% was “absolutely essential,” and an interest rate increase of 0.5% was “on the table” for the US central bank in the coming weeks.
The US Federal Reserve is expected to make its biggest interest rate increase of the century when its May meeting adjourns on Wednesday as it takes a firmer hand against the depreciating value of the US dollar.
The Board of Governors is expected to rate its benchmark short-term interest rate, also called the Federal Funds Rate, by a half-percentage point when its rate-setting meeting ends on Wednesday, the Associated Press reported. If so, it will be the largest single increase since 2000, when the Fed struggled to rein in the bursting dot-com speculatory bubble.
According to numbers released in mid-April by the Bureau of Labor Statistics (BLS), the price of consumer goods tracked by the Consumer Price Index increased by 8.5% over the previous 12-month period, marking an increase in the rate of inflation above the 40-year high reached earlier this year.
The falling value of the dollar is attributed to existing inflationary trends that have developed during the COVID-19 pandemic as a result of shortages and speculation, but also due to the rising cost of petroleum associated with a US-led Western boycott of Russian petroleum exports. US President Joe Biden ordered the boycott in response to Russia’s special operation in Ukraine, which began on February 24.
Fed Chairman Jerome Powell claimed last fall that the expected inflation would be short-term. At the helm of the Fed through the pandemic, Powell has favored encouraging job growth and economic stability over controlling inflation, which is the more typical purview of the central bank.
That came to a sharp and sudden end in March 2022, when the Fed decided it was time to act and increased the Federal Funds Rate by 0.25 percentage points, indicating that an overall increase by at least 2 percentage points in the coming months should be expected.
On Monday, the Effective Federal Funds Rate stood at 0.33%, representing the interest rate at which depository institutions such as banks and credit unions can lend reserve balances to other banks on an overnight basis. The higher the rate, the more money banks are required to hold in their vaults and the less they can lend, which results in less money creation.
According to the Financial Times, investors expect the EFFR to hit 2.7% by the end of the year, with similar developments taking place in Europe in response to a similar inflationary problem.
Newsfeed
0
To participate in the discussion
log in or register
loader
Chats
Заголовок открываемого материала