The Federal Reserve is all set to increase the already whopping interest rate even further, raising concerns about the upcoming economic recession. In its Wednesday meeting, the Fed confirmed it would increase the interest rate by a 75-basis-point.
More Interest Rate Hikes Burden American Economy
Many economic observers and the White House suggested inflation touched its peak in July. August and September economic indicators worried the central bank to the extent that they are eyeing to further increase the policy rates.
The Fed’s decision to increase interest rates has skyrocketed the concerns of the business community as well.
Nearly 87% of traders predicted the central bank would increase the interest rate by a 75-basis-point, while only 12% suggested that the Fed would raise the interest rate by a 50-basis-point.
The Fed is expected to raise interest rates again Wednesday.
Even with the central bank's aggressive stance toward fighting inflation, the S&P 500 has risen following 4 of the 5 other rate hikes.
— USA TODAY Graphics (@usatgraphics) October 31, 2022
Wall Street traders are now aiming to listen to the press conferences of Fed officials on Wednesday; they can make shocking announcements about the future of the American economy amid the nosediving business activity.
Last time, when the Fed increased the interest rate, many investors believed it could be the last hike in 2022. Yet, continuously deteriorating economic numbers and rising inflation stashed the hopes of the investors.
The Federal Reserve was worried about the latest Consumer Price Index data, which showed inflation rose by 0.1% in August, compared to July. Currently, the prices are 8.3% high compared to last year, which means the price hike is standing at nearly 40 years high.
Danielle DiMartino Booth, the CEO of a Wall Street observer, Quill Intelligence, noted Fed chairman Jerome Powell has many incentives to increase the interest rates, as unemployment is still standing at a 50-year low.
Usually, the Fed is hesitant to burden the economy when unemployment is rising. Since the stock market performed well after the last meeting of the Fed, Powell is fully motivated to put financial strains on the businesses, Booth added.
Even with worries about an impending recession, investors have been surprisingly upbeat on the days when the Fed has increased interest rates.https://t.co/ihtqwrraIv
— USA TODAY Money (@USATODAYmoney) November 1, 2022
Dangerous Interest Rate Hikes Guarantee Recession
The latest interest rate hike of the Fed comes at a time when the central bank already announced five consecutive interest rate hikes this year.
In its June, July, and September meetings, the Fed increased the policy rate by 75-basis-points, thus pushing the rates near the dangerous limit of 3.00% and 3.25%.
Investors believe the Fed will keep rates high until it is convinced inflation finally reduced. As 2023 is not an election year, the Fed will not be under any political pressure from Democrats to bring the interest rates lower.
Data from the last meeting of the Fed shows policymakers are expected to increase the interest rate up to 4.6% next year.
Some economists even suggested the interest rate can touch 5% in March next year. Yet, this much increase in the interest rate poses a significant threat to businesses nationwide, which could eventually trigger an economic recession.
This article appeared in Right Wing Insider and has been published here with permission.