Another 0.75 percentage point rate hike is expected to reach the range of 3.75-4.00 percent. This will be the fourth consecutive increase of 0.75 percentage points and the sixth this year. Generally, the Fed prefers to raise interest rates in smaller increments of 0.25 percentage points.
The pressure on the central bank is huge: US inflation is still high. According to the October data, the inflation rate drops very little. In September, consumer prices increased by 8.2 percent compared to the same month of the previous year. Even core inflation, which excludes fluctuating energy and food prices, rose from 6.3 percent to 6.6 percent.
Both values were above market expectations, forcing the central bank to take action. Keeping inflation under control is the traditional duty of central banks.
High consumer prices are also a huge burden for US President Joe Biden and his Democrats, given the crucial US midterm elections on November 8th. In elections, Democrats could lose their already narrow majority in the US Congress. Surveys show that the subject of inflation is of particular interest to people in the country.
According to polls, many voters put Republicans ahead when it comes to economic sufficiency. During the election campaign, while denouncing the high inflation that Democrats blame, it is also a result of the Russian war of aggression.
At the same time, tight monetary policy raises the risk that the central bank will soon slow the economy so much that the job market and economy will stall. Because if interest rates rise, citizens and businesses have to spend more money on loans – or borrow less.
As a result, growth slows, companies can no longer simply move on to higher prices, and ideally, inflation falls. However, some fear the Fed may overdo it and plunge the world’s largest economy into recession.
The US Federal Reserve has always used the robust labor market as an argument against the economy falling into a deep recession. Many companies are complaining of labor shortages. The US economy also grew slightly stronger than expected during the summer months. US President Biden saw this as evidence of the ongoing economic recovery in the US and the resilience of the people in the country. The US economy shrank in the first half of the year.
Now the penultimate Fed meeting of the year – another meeting is scheduled for December. Some observers also do not rule out the possibility that the Fed will raise rates by only half a percentage point this time. Such a move would likely mean a departure from the Fed’s aggressive interest rate policy. However, experts think this is highly unlikely – just like a full percentage point increase in the key interest rate.
“The Fed’s top priority should be to curb rising prices. The Washington Post said the Fed should remain firm unless there is convincing evidence of a trend reversal. “A recession is not desirable. But high inflation is a bigger threat and it’s already here.”
If real wages fall further due to rising consumer prices, it will hit low-income people the hardest. The newspaper warns that the economy should not fall into the inflationary spiral of the 1970s.
(SDA)