What Can Bring The Fed's Next Decision And What It Means For Economy?

Another Fed decision is ahead. During the Covid-19 pandemic, the interest rate was kept close to zero, but rose sharply in response to rising inflation. Last time I mentioned that the level of interest rates will be at a historical level. It looks like we can expect even higher levels.

Read more: This Will Be The Highest Rate Level In Five Years| FXMAG.COM

What to expect?

In an effort to bring down inflation, which was near the highest levels since the early 1980s, the central bank raised the federal funds rate to a range of 3% -3.25%, the highest since the beginning of 2008.

The economy is growing too fast and inflation is heating up, the Fed is likely to raise interest rates to curb spending and loans. Fed rate movements depend on inflation and employment data. According to experts, job creation has not slowed down significantly.The Fed still believes that inflation risk is weighted upwards and that the ongoing rate hikes are appropriate. Many experts believe the Fed will remain hawkish and will raise rates by 75bp again.

Subsequent increases are also connected with the hope that headline inflation will fall this year. Along with the rate hikes, the Fed reduced the amount of bonds accumulated over the years. September was the start of a rapid "quantitative tightening" as is known in the markets. Looking even further ahead, the Fed is preparing to raise rates to 4.5-4.75% next year.

What it means for consumer?

Inflation remains high and interest rates are rising, putting Americans in a difficult financial position. This can slow down demand and spending for both consumers and businesses. US consumer confidence fell to its lowest level since July in October as high borrowing costs and soaring inflation hit household budgets. The level of consumer optimism has weakened not only for the current economic period, but also for what may happen in the next few months.

As a result, households are less likely to spend money and businesses do not have as much access to capital to expand or expand their businesses. Worse, companies tend to pass on these extra costs, making them a "double-edged sword" for consumers.

When the Fed raises interest rates, it becomes more expensive to borrow money. This means higher rates for credit cards, car loans, and any industry that relies on financing. This is painful for consumers, especially those who rely more on credit cards or loans.

Benefit of a rate hike

Savings and CD interest rates are rising due to Fed rate hikes, which means more earnings from your savings balance and a few extra dollars back into your pockets.

Having an emergency fund can help deal with unexpected expenses and periods of financial instability. Experts generally recommend saving anywhere for three to six months, but even saving just a few dollars a week can shift significantly over time.

Recession is ahead?

Markets fear that beating inflation means starting a recession. While the Fed is aiming for a "soft landing" for the economy - by bringing inflation down to 2% without triggering a recession - many fear a recession is coming. Many indicators suggest that this state of farmyard is inevitable. If the Fed raises rates too high and too quickly, it could cool demand so much that the economy will slide into recession.

Source: investing.com