Fed Launches Feckless Fight Against Inflation

On Wednesday, the Federal Reserve delivered the news that numerous Americans have been eagerly awaiting: its plan for combatting the highest levels of inflation in more than four decades. In remarks to the nation, Fed Reserve Chairman Jerome Powell declared that the Central Bank would raise interest rates by 0.5 percent.

Though the interest rate increase is the most aggressive move the Federal Reserve has taken since 2000, several economists and analysts perceive the 0.5 percent increase as insufficient to combat rapidly spiraling inflation, particularly in conjunction with a growing global supply chain crisis.

However, the Federal Reserve also indicated that more hawkish moves are in store in the future, including subsequent 0.5 percent increases throughout the remainder of 2022.

After today’s announcement, interest rates are now at their highest level since the onset of the pandemic more than two years ago.

In addition, the Federal Reserve also declared that it intends to commence reducing its massive $9T balance sheet, which primarily consists of mortgage and Treasury bonds. As the pandemic spread throughout the nation, the Federal Reserve more than doubled these holdings, purchasing multiple trillions in bonds in an effort to keep borrowing rates low as the economy careened downward.

Specifically, on June 1, the Federal Reserve will permit upwards of $48B in bonds to mature without any replacement of the bonds. By September, approximately $95B in bonds will undergo similar treatment, optimally shrinking the balance sheet by $1T.

By reducing its balance sheet, the Federal Reserve will likely bring about the effect of additional increases in loan costs throughout the nation’s economy.

Increased interest rates will make borrowing more expensive, which in turn should cool business and household expenditures. Mortgage rates, for instance, have recently soared past 5.1 percent, their highest level in multiple years.

The objective of the Federal Reserve is to attempt to tame wildly spiraling inflation while simultaneously avoiding a recession, though achieving both outcomes at the same time may prove to be a difficult feat.

Given that the Federal Reserve dithered for too long with regards to tightening monetary policy, various economists find it doubtful that a recession can be avoided.

In the past month, inflation soared to 6.6 percent, its highest level in well over forty years. Various factors have been attributed to inflation, including rising energy costs and near-constant supply chain issues.

Moreover, numerous major economies have reported intentions to address their own long-term addiction to quantitative easing (QE), which may place additional economic pressure on a global recovery. Australia, for example, is raising its interest rates for the first time in eleven years.

The ongoing lockdowns in China may also lead to a recession in Asia’s largest economy, further complicating recovery from the pandemic.


Most Popular

These content links are provided by Content.ad. Both Content.ad and the web site upon which the links are displayed may receive compensation when readers click on these links. Some of the content you are redirected to may be sponsored content. View our privacy policy here.

To learn how you can use Content.ad to drive visitors to your content or add this service to your site, please contact us at [email protected].

Family-Friendly Content

Website owners select the type of content that appears in our units. However, if you would like to ensure that Content.ad always displays family-friendly content on this device, regardless of what site you are on, check the option below. Learn More



Most Popular
Sponsored Content

These content links are provided by Content.ad. Both Content.ad and the web site upon which the links are displayed may receive compensation when readers click on these links. Some of the content you are redirected to may be sponsored content. View our privacy policy here.

To learn how you can use Content.ad to drive visitors to your content or add this service to your site, please contact us at [email protected].

Family-Friendly Content

Website owners select the type of content that appears in our units. However, if you would like to ensure that Content.ad always displays family-friendly content on this device, regardless of what site you are on, check the option below. Learn More