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While the US Fed has almost decided on the interest rate hike for this month following the two months of running inflation.
The US Federal Reserve’s (Fed) Open Market Committee (FOMC) is expected to make history today with the proposed interest rate hike as the policymakers strive to revert the surging inflation rocking the world’s most powerful nation.
There are a lot of implications with respect to the potential interest rate hike as the FOMC is concluding its 2-day policy meeting. A hike that many analysts believe will trail the previous 75 basis points may put the total interest rate that the US economy is operating on at a total of about 2.25% since the Fed started raising interest rates this year.
It is worthy of note that active economic growth may be impaired if borrowing costs exceed a rate of 2.4%, and the chances that the US will slip into this are very very high. The inflationary reading for the month of June came in at 9.1%, up from the 8.6% recorded for the month of May. The continuous inflationary growth has made the US policymakers more resolved in their push to get the readings back to the annual target of 2%.
Irrespective of the impact of its policies on the economy, the most feasible tool that the US Fed can deploy to combat this inflation is to raise interest rates. How far the Federal Reserve officials will be willing to go now is dependent on the deliberations at the policy meetings. However, based on this rate of inflation growth, at least one in four analysts believe there is a very high probability that the Fed will hike the interest rate by 100 basis points.
With speculations growing across the board, the anticipations for the interest rate update are growing more every minute.
US Fed Potential Mid-Term Interest Rate Disposition
While the US Fed has almost decided on the interest rate hike for this month following the two months of running inflation. What investors and analysts are now looking forward to is the policy meeting scheduled for September 20 to 21.
The implications of this current interest rate hike and how the economy responds to this will determine how the Fed will pivot in the next meeting. The key indications that will determine whether the US Fed officials will change gear and reduce the interest rate include job creation, consumer spending, business outputs, and other core aspects of the economy.
While there is a likelihood that the worst is ahead, there is a belief that the US economy “is likely to have contracted in the first half of the year, but job growth remains robust. Inflation is leading to record-low consumer sentiment, but consumers are still spending,” as are businesses, Greg Daco, chief economist at EY-Parthenon, wrote this week, adding that the US right now is “a world of paradox.”