March 18, 2022 · less than 3 min read
In a sign of the times, the Fed has signaled its first 0.25 interest rate rise in three years – and there’s more on the way.
Inflation, inflation, inflation
You don’t need to be an economist to figure out the reasons for this rate hike. Countries around the world are battling an inflation hangover from the pandemic – almost certainly to be made worse by events in Ukraine.
To combat this, central banks are slowly hiking up interest rates to try and cool things down. But as the Fed’s latest summary tells us, things aren’t likely to change any time soon.
Turning it up
The Fed’s rates have been pretty incremental in recent years, so an increase of 0.25% isn’t something to be sniffed at. More worrying? It’s going to be the story for the rest of the year, too.
Inflation is at a 40-year high, and with war and a Covid outbreak in China only set to make things worse, the Fed is moving quick out of the blocks. But with another six hikes forecast for the rest of the year, interest could go as high as 2%.
Fighting the good fight?
The challenge that the banking brains at the Fed are wrestling with is that while fighting inflation helps keep prices as affordable as possible, if they raise rates too much and people start saving over spending, it could destroy the US’ economic recovery and trigger a recession – which is, obviously, not ideal.
So, where’s the sweet spot? Nobody knows for sure. These latest inflation figures don’t take into account the effect of the war in the east. When they do, things might start looking real ugly – real fast.
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