fbpx
Now Reading
Fed Approves Interest Rate Hike For the First Time In 3 Years, But Experts Warn More Will Follow

Fed Approves Interest Rate Hike For the First Time In 3 Years, But Experts Warn More Will Follow

After dropping interest rates to zero in March 2020 to revive the economy, the Federal Reserve has just shifted gears to go into inflation-fighting mode.

The Fed has approved a 0.25 percentage point rate hike on Wednesday, marking the first increase since December 2018. The fact that the Fed is finally moving away from zero shows confidence in the health of the jobs market. But the speed with which interest rates could go up underscores concerns about the soaring cost of living. For context, the Fed raised rates to as high as 2.37% during the peak of the last rate hiking cycle in late 2018. Before the Great Recession of 2007-2009, Fed rates got as high as 5.25%.

 

Officials indicated an aggressive path ahead, with rate rises coming at each of the remaining six meetings in 2022, with the subsequent rate hikes coming to a consensus funds rate of 1.9% by the end of the year. That is a full percentage point higher than indicated in December 2021, before Putin’s invasion of Ukraine threw the world’s markets into uncertainty. Members also pared down expectations for economic growth this year and sharply raised their outlook for inflation.

Fed Chairman Jerome Powell hinted at his post-meeting news conference that the Fed’s nearly $9 trillion balance sheet reduction, which is made up mainly of Treasurys and mortgage-backed securities it has purchased over the years, could start in May. Powell also said the process could be the equivalent of another rate hike this year.

Addressing the rate hike in a statement, the Fed laid out its plan for the remainder of the year. “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting,” the statement read.

Every time the Fed raises rates, it becomes more expensive to borrow. That means higher interest costs for mortgages, home equity lines of credit, credit cards, student debt, and car loans. Business loans will also get pricier, for businesses large and small. Americans will feel this shift through higher borrowing costs: No longer will it be insanely cheap to take out mortgages or car loans. And cash sitting in bank accounts will finally earn something, albeit not much.

 

The Fed’s committee sees three more hikes in 2023 then none the following year.

 

 

What's Your Reaction?
Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

© 2021 Hillreporter.com

Scroll To Top