The Fed Increases Rates stated on Wednesday that it had raised the standard interest rate by 0.25% to a maximum of 5.5%, the highest level in 22 years, in an effort to deal with excessive inflation in the US economy.
Despite a 12-month drop in retail prices, the month of June experienced a 3% year-over-year increase. Given that this is the lowest annual inflation rate in over two years, it continues to stay above the Federal Reserve’s 2% target range.
The Fed anticipates demand for product, services, and labor to shrink as borrowing and investing costs rise.
Shortage of labor
In April 2020, when most of the country was shut down due to the epidemic, there were approximately 5 unemployed persons for every job vacancy. The May 2023 value is 0.6.
Despite the fact that there are no commitments, Federal Reserve Chair Jerome Powell has been emphasizing that he wants to prevent this problem since the Fed started raising interest rates. Several factors could cause a recession.
The Fed’s interest rate decision suggested that it no longer predicted a recession from future interest rate hikes.
Some authorities claim that some dangers may still exist.
Bankrate’s senior v.p. and top financial analyst Greg McBride said, “Inflation remains stubbornly high.””The economy has been exceptionally strong, and the labor market is still solid, but that may be a reason why inflation is so high,” he added. The Fed must slow down.
The Fed analyzes inflation and unemployment. Unemployment is 3.6%, a record low.
The Fed slows the economy to control inflation without causing mass job losses.
McBride said that the Fed is instead looking to reduce the overall number of job openings relative to unemployed workers. Before the pandemic, there was about one jobless person for every job opening. There are currently fewer than one.
He said, “The job market is still out of whack.” “That can contribute to pressures for inflation.”