Us Fed Indicates Further Rate Hikes

US Fed indicates further rate increases

Washington August 18, : US Federal Reserve officials suggested that further rate hikes are possible since they found “little evidence” that inflation pressures were decreasing according to the minutes of the Fed’s last policy meeting.
“Uncertainty regarding the course of inflation was still high, and the balance of risk of inflation remained tilted towards the upward direction, with several participants highlighting the possibility of additional supply shocks arising from the commodities market,” revealed the minutes on Wednesday of the Federal Open Market Committee (FOMC)’s July 26-27 meeting.

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The index of consumer prices (CPI) has been at or above 8 percent from March and in July, the number jumped 8.5 percent from the previous year, and was lower from last month’s four-decade-high, but still at an the highest level.

Fed officials concluded that inflation would react to tightening of monetary policy and the accompanying slowing in economic activity with some delay, and will likely remain “uncomfortably high” for a while.

In light of an increase in inflation and risk of upside risk to the inflation outlook Participants believed that shifting to “a moderate policy” of the policy rate in the near future is also a good idea from a risk management perspective.

“Participants believed that a significant danger for the Committee was that a rise in inflation could become a permanent issue when the public begins to doubt the Committee’s determination to change the policy stance of policy in a sufficient manner,” the minutes said.

“If this scenario were to occur it could impede the process of getting inflation back to 2% and could increase the costs of doing this,” it added.

In its meeting in July at the end of July, the Fed announced a 75-basis point rate hike, which is the biggest back-to-back rate hike in years, in a bid to stop the rise of inflation.

The Fed has already raised interest rates by 250 basis points since March of this year.

It is expected to keep its aggressive pace which increases the risk of the possibility of a recession.

The Fed minutes revealed that indicators of production and spending indicated that the second quarter of this year had witnessed an “broad-based moderated” in economic activity, which included a slower increase in consumer spending and decreasing housing activity.

Despite a strong labour market, a lot of participants observed preliminary signs of the outlook becoming more sluggish for the labor market: the increase in weekly unemployment insurance claims a decrease in the rate of resigning and vacancies slowing increase in pay stubs than in earlier in the year and reports of cuts in hiring in certain sectors.

“A moderate improvement in employment market conditions will likely result in a decrease in the quantity of job openings, as well as an growth in unemployment, which is currently at a extremely low level,” The minutes stated.

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