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US Fed to hike interest rates, pace to slow down 'at some point'

  • By Al Mayadeen English
  • Source: Agencies
  • 17 Aug 2022 23:18
3 Min Read

The Federal Bank of the United States is preparing for more interest rate hikes to try to cool rising inflation by curbing demands.

  • x
  • Inflation is not cooling and the Fed is still raising interest rates
    Inflation is not cooling and the Fed is still raising interest rates

The US Central Bank is still committed to raising interest rates further in order to bottle up surging inflation, though the Fed claimed that it would be slowing the pace of such hikes "at some point," the Treasury said Wednesday.

In the minutes of the July policy meeting, which produced a second massive increase of 0.75 percentage points, Fed officials said it would take some time to bring "unacceptably high" inflation back down near their goal of 2%. 

There is a "risk" the Fed could go too far while trying to hold back demand and lower prices, central bankers underlined.

The Fed increased the benchmark borrowing rate four times this year, including two massive 0.75% in June and July after US annual inflation spiked to 9.1% mid-year.

The US central bank has already indicated that it had plans to hike interest rates on loans last month, but it is looking like the Fed is more likely to increase the aggressiveness of its policies put in place to combat inflation. That would drastically affect the national economy and increase the chances of recession.

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The Dow Jones Industrial Average fell 700 points below 30,000 for the first time in over a year in July, emphasizing how staggering is the US economy.

Members of the Fed's policy-setting Federal Open Market Committee (FOMC) noted the recent decline in energy prices and some signs that supply constraints have eased. However, they said falling oil prices "cannot be relied on" to lower overall inflation. 

The rapid, aggressive moves by the central bank have started to have an impact, and the minutes said while officials expected the US economy to continue to expand in the second half of the year, "many expected that growth in economic activity would be at a below-trend pace."

Given the numerous risks the United States is facing, the country only has a meager chance of averting an economic slump, the IMF warned late last month.

US government data released at the end of June showed that price increases that had held steady in the past 12 months ended in May, while the rise in consumer spending slowed sharply.

Meanwhile, the Fed has been for the past few months aggressively hiking interest rates to try and lower rising prices, but its efforts did not materialize in May, with consumer prices hitting four-decade highs. Consumer prices in May rose 8.6% and soared over what economists thought was the peak in March.

Energy prices have risen 34.6% over the past year, the fastest since September 2005, food prices have increased 10.1%, and the cost of fuel oil increased by more than two-fold, soaring 106.7% - the largest increase in the history of the consumer price index. A gallon of gas across the US reached $5 nationwide for the first time in history, setting a new record for oil prices.

  • United States
  • Federal reserve
  • International Monetary Fund
  • inflation
  • US inflation
  • Gas prices

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