The Federal Reserve stated on Wednesday that it would be hiking interest rates by another quarter of a percent amid concerns that the recession is still very much alive.
The news broke despite numerous Wall Street executives and financial experts stating that the recent financial crisis, which saw the failure of three banks, should make the Fed reconsider continuing to hike interest rates.
In contrast, Fed Chair Jerome Powell dispelled those worries in a statement made after the Fed made its decision, noting that risky investing strategies and a failure to adhere to regulatory requirements were to blame for the bank failures, which started with Silicon Valley Bank’s demise earlier this month.
The Fed has insisted that bringing down inflation is its top priority, and they have established a target of at or below 2% inflation. This shows they don’t consider the most recent mini-financial crisis as a direct outcome of their policy and will continue to be more aggressive with interest rate hikes.
After the Fed’s decision on Wednesday, the Bank of England made a comparable step on Thursday, increasing interest rates by 0.25 percentage points to 4.25 percent in response to concerns that inflation in the U.K. was also picking up steam.
The Bank of England also thinks the UK is no longer headed for a recession, which is good news for the country.
“The Bank added that a recession in the UK was no longer imminent.”
Bank governor Andrew Bailey remarked, “We were really on a razor edge as to if there would be a recession… but I’m a little more confident now.”
“The UK is not off to the races,” Mr. Bailey said “since only modest economic growth is anticipated over the next few months.”
“In an effort to combat rising prices, interest rates have been climbing consistently.”
“Inflation, which measures how quickly prices rise, was more than five times the Bank’s target in the year to February and is still very near to its highest level in 40 years at 10.4%.”
Inflation has been increasing globally, but more so in the United States and the United Kingdom than virtually everywhere else. The quantity of money distributed to residents in the United States to address various forms of poverty during the COVID-19 pandemic has been the main contributing factor. The amount of money that was pumped into the American economy caused the inflation rate to skyrocket.
The U.S. economy is still a source of concern even though the Bank of England believes that the U.K. is no longer headed for a recession. The Federal Reserve has been aggressive in raising rates, but it must still do so gradually or run the risk of seriously disrupting the economy (even further).
The Fed is now under attack from both the left and the right due to its delicate balancing act. Progressives in particular are calling for the Fed to stop raising rates and concentrate on regulations. Conservatives are currently pressing for an explanation of why those banks were saved because they are suspicious of federal authorities.
Author: Blake Ambrose