federal-reserve-raises-interest-rates-first-time-three-years

Federal Reserve Raises Interest Rates for First Time in Three Years

The federal reserve is beginning a fight against inflation with an important raise in interest rates. But some economists are worried that it won’t be enough.

At a Glance

  • This is the worst inflation since the 80s.
  • The reserve is raising its benchmark short term interest rate and signals it could do so six more times this year.
  • The Fed is hiking this key rate by a quarter point.
  • This rate hike will likely impact businesses and consumers, who’ll see higher loan rates
  • Some economists worry the Reserve didn’t raise the short term interest rate quickly enough

The Federal Reserve Raising The Interest Rates is Part of an Important Fight Against Inflation

According to AP, the federal reserve is launching what the publication calls a “high risk” effort to curb inflation. This is the worst inflation has ever been since the early 1980s. The reserve has raised its benchmark short-term interest rates and indicated it could potentially do so six more times this year if necessary.

The reserve, which is raising the important rate by a quarter-point, is part of a method to fight inflation, which started following the recovery from the recession. The rate-hiking will eventually impact consumers and businesses. Eventually, they’ll start seeing higher loan rates.

“We’re acutely aware of the need to restore price stability,” Fed chair Jerome Powell said in a news conference. “In fact, it’s a precondition for achieving the kind of labor market that we want. You can’t have maximum employment for any sustained period without price stability.”

But Powell is confident that the economy will be fine, even with the new interest rate.

The Russian Invasion of Ukraine Could Complicate The Strategy

This is a more aggressive move than a lot of economists expected. But still, some economists fear this might not be enough. With inflation reaching 7.9% in February and Russia’s Invasion of Ukraine hiking up gas prices, the Fed may have to raise the rate even higher. That could lead to a recession.

Roberto Perli, an economist at Piper Sandler, questioned these rates in a note to his clients.

“In the past, whenever the Fed has approached — let alone exceeded— neutral, the economy weakened sharply. The risk of recession in 2023 and beyond is increasing,” he wrote.

Economists aren’t worried that the Reserve is raising the interest rate, but what does seem to be worrying experts is that The Reserve may not have acted quickly enough. The central bank has even admitted that it underestimated the scope of inflation following the pandemic.

But Powell, meanwhile, stays confident that the economy will be okay.

“The probability of a recession in the next year is not particularly elevated,” he said.