The Federal Reserve of the United States has raised interest rates to their highest level in nearly 15 years in an effort to contain skyrocketing prices in the world’s largest economy.
What you should expect
Borrowing rates are anticipated to rise more – and remain high, according to the bank. Rate hikes are expected to reduce demand, relieve pricing pressures, and avoid long-term economic damage.
The move comes despite growing fear that the cost of keeping inflation under control could be a severe economic collapse.
The banks hoped that the challenges would go away as supply chain issues associated with the coronavirus epidemic subsided. However, the war in Ukraine, which hampered gasoline and food supplies, exacerbated the situation.
Why this is happening
While oil prices have since fallen, inflationary pressures are now spreading throughout the economy, with the most current data showing August inflation at 8.3%, with significant rises in housing, health care, and education expenditures.
While wages have risen, they have not kept pace, putting a strain on household finances.
Central banks plan to curb demand for big-ticket products like automobiles, homes, or business expansions by hiking borrowing costs for businesses and people, which should alleviate the pressures pushing up prices.
However, it also means reduced economic activity, which usually causes job losses and other economic hardship.
In the United States, where the economy declined in the first half of the year, home sales have dropped, and an increasing number of businesses have implemented job cuts or hiring freezes, warning of rising costs and a slowdown ahead.
For the time being, the US labour market shows few indications of slowing, which is helping to maintain consumer spending, the key driver of the US economy.