No ‘soft landing’ likely for US economy – Fed chairman — Analysis

Federal reserve will aggressively raise interest rates, but balancing this against inflation could prove “challenging”

Jerome Powell, Chairman of the Federal Reserve, stated Monday that interest rates will be raised by the central bank. “more aggressively”To bring down spiralling prices. He acknowledged, however that it would be difficult to do this without the economic crash. “challenging,”Be aware, however, that it is possible to get hurt by using a “soft landing”This is not a guarantee.

Powell spoke at the National Association for Business Economics. Multiple US news agencies reported his remarks. 

“We will take the necessary steps to ensure a return to price stability,”He stated. “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”

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One basis point equals 0.01 per cent. Federal Reserve hiked rates by 25 points last week, or 0.25 percent, bringing borrowing costs up to 0.5% from near zero in the past three years. Fed officials expected six additional increases to the rates in 2022. They also predicted that there would be at least three more for 2023.

The Federal Reserve sets the short-term lending rate for commercial banks. They then transfer this rate to their customers. The Federal Reserve controls the short-term borrowing rate for commercial banks. Higher rates reduce money availability, which in turn lowers inflation and contracts the economy. The 1970s saw the Fed raise interest rates by more than 20%, and then stop buying bonds. This was the most dramatic example of this method to rein in inflation.

According to Fox News, both Trump’s and Biden’s administrations kept interest rates low while the presidents overflowed the economy. Trump created a quarter the amount of dollars that were ever made in 2020. Biden spent more during his eight-month presidency than Trump in both 2018 and 2019.

Powell reminded us that the task of readjusting America’s economy downwards is not an easy one. “No one expects that bringing about a soft landing will be straightforward in the current context,”On Monday, he added: “Very little is straightforward in the current context.”

Monetary policy – the discipline of economic management that interest manipulation falls under – is a “blunt instrument, not capable of surgical precision,”He continued and said that “My colleagues and I will do our very best to succeed in this challenging task.”

Core inflation – a metric often cited by the Fed which excludes food and energy costs – rose 5.2% in January, the sharpest increase in 38 years when compared with the preceding January. According to the US Department of Commerce, the price of goods and services increased 7% in quarter four of 2021. Food prices went up by 9% while energy costs rose 34%. American shoppers also report much larger increases in prices for certain products, like meat.

Biden’s administration once described it as “transitory,”Coronavirus-related disruptions in supply chains and shocks to global energy and grain markets after the conflict in Ukraine have exacerbated inflation. 

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