The US Federal Reserve raised its benchmark interest rate in the US again on Wednesday, indicating that there will be further hikes in the future, in a fierce stance that raises fears of a recession.
Federal Reserve Chairman Jerome Powell has warned that the process of eliminating inflation will entail difficulties.
This is the third consecutive 0.75 percentage point increase by the Federal Open Market Committee, tasked with setting policy at the Federal Reserve, and as part of ongoing efforts to reduce inflation, which has risen to its highest level in the past 40. years.
The interest rate, after the last increase, reached 3.0 and 3.25 per cent. The Open Market Committee said it “expects continued increases … they will be appropriate”.
Rising prices are putting pressure on American households and businesses and have become a political burden for President Joe Biden, who faces midterm Congressional elections in early November.
But shrinking the world’s largest economy would be an even more damaging blow to Biden, the Federal Reserve’s credibility, and the world at large.
Federal Reserve Chairman Jerome Powell made it clear that officials will continue to act aggressively to calm the economy and prevent a repeat of the 1970s and early 1980s, the last time inflation was got out of control in the United States.
It has called for stringent measures in the midst of a recession to bring prices down, and the Federal Reserve is not ready to give up its credibility in fighting and overcoming inflation.
In response to the Federal Reserve’s criticism, Powell made it clear that the US central bank is committed to raising interest rates and keeping them high until inflation falls, warning against taking the opposite path in the near term.
Powell told reporters that “the historic record strongly warns against premature easing.”
He stressed that the Federal Reserve will continue “in this way until the task is done”, although at some point it will be appropriate to slow down the pace of interest rate hikes as dictated by indicators and data.
He acknowledged that lowering inflation would require a period of slow growth and high unemployment, saying, “We have to leave inflation behind. I wish there was a painless way to do it, but there isn’t.”
He stressed that continuing inflation will be more painful, especially for those least able to bear.
Inflation is a global phenomenon exacerbated by the Russian war in Ukraine and the disruption of global supply chains after the closure of Covid in China, and other central banks around the world are taking similar measures to combat it.-
