US Fed: Raising interest rates "will soon be appropriate"
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Though the Federal Reserve has kept the interest rates at a zero, soon it will see an increase with the inflation rises.
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Federal Reserve Board building on Constitution Avenue in Washington, March 19, 2019. (Reuters)
On Wednesday, the US Federal Reserve, though has kept the interest rates at zero, deemed it appropriate to see an increase in the rates soon, citing improvements in the employment situation and increasing inflation levels.
Alarms were sounded in November, when Jerome Powell, chair of the Federal Reserve, has called for retiring the term "transitory" when describing the recent burst of inflation.
"With inflation well above two percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate," the Federal Open Market Committee (FOMC) said at the end of a routine meeting. The FOMC is a policy-setting body.
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With no precise dates given, the first-rate increase by the central bank - since the start of the pandemic - will be in March, when the bond-buying stimulus program comes to an end. The benchmark borrowing rate, according to officials, will not undergo an increase until the program ends.
Furthermore, the committee released guidelines on shrinking bond and security holdings, especially massive ones, which have accumulated during the most recent economic crisis.
The FOMC "expects that reducing the size of the Federal Reserve's balance sheet will commence after the process of increasing the target range for the federal funds rate has begun."
US inflation rate up to a nearly 40-year high of 7%
Inflation in the United States is hitting new highs and is likely to continue into 2022.
Consumer prices rose 0.5% in December, causing the inflation rate to hit nearly 7%, which constitutes the highest rate in 40 years in the North American country.
The gain in the consumer price has gone beyond the 0.4% prediction that economists posited in The Wall Street Journal.
The US government said on Wednesday that a separate measure of consumer inflation that rules out volatile food and energy values rose 0.6% in December, pushing the previous year's increase to 5.5% from 4.9%, constituting the highest in 31 years.
The US current inflation situation can be attributed to increasing customer demands and labor, as well as supply shortages. By the end of 2022, inflation rates are likely to exceed 3%.
This is an alarming number. Why? Before the effects of the pandemic, inflation averaged 1.5% a year approximately.
