More Rate Hikes Are Here

More Rate Hikes Are Here
Carl Hazeley

almost 2 years ago1 min

The Federal Reserve (the Fed) hiked US interest rates by 0.25% on Wednesday, as expected, highlighting the central bank’s focus on bringing inflation – currently at record highs – down to a more manageable level.

The chart shows the Fed’s “dot plot”, illustrating its committee members’ forecasts for US interest rates this year and beyond. The green line shows the median forecast: the Fed’s expecting rates to rise from 0.5% currently to 1.75-2% this year and 2.75% next year.

The risk, though, is that still-high inflation plus higher interest rates will significantly slow down economic growth. And it sounds like the Fed’s okay with that: it’s prioritizing price stability, arguing it’s necessary for a strong labor market. Given that price stability is and full employment are the Fed’s main goals, it can perhaps be forgiven for its willingness to sacrifice economic growth to achieve them.

And it’s not just the US: the Bank of England just hiked UK interest rates for the third time in a row, while also warning that inflation in the country could top 8% this year. That’d squeeze consumers’ budgets and therefore weigh on economic growth.

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