U.S. Fed Announces first rate hike Since 2018; Economists Say Fed Is A Little Late.

On Wednesday, March 16, the U.S. Federal Reserve announced a 0.25 per cent hike in its benchmark short-term interest rate with the aim to combat inflation.

For supporting the growth and hiring during the recession and its consequences, officials settled on ultra-low rates.

Chairperson Jerome Powell is expecting that the hiked rates will help in raising borrowing costs to slow the growth and combat inflation.

On March 16, the U.S. Federal Reserve declared a 0.25 percent rise in its benchmark short-term interest rate in order to win the battle against the worst inflation since the 1970s.

This is the first time since December 2018 that the Fed has raised the interest rates. The decision was taken at the Federal Open Market Committee (FOMC) meeting. The interest rates have now reached the range of 0.25-0.5 percent after the 25 basis point-hike.

The Fed earlier hinted that it would start unfurling some of its measures that were extended, keeping the COVID-19 pandemic in mind, making the Fed’s move highly anticipated. The rate hikes translate to higher loan rates for many consumers and businesses ahead.

As per the updated quarterly projections released by policymakers on Wednesday, they expect inflation to remain high and, at the end of 2022, reach 4.3 percent. It is way above the annual target of 2 percent. The official also predicts a growth of 2.8 percent this year, down from the 4 percent estimate in December.

In order to support the growth and hiring during the recession and its consequences, officials have decided to fix rates ultra-low. In December, the Fed officials decided to raise rates thrice this year. However, now it’s estimated seven hikes will increase the short-term rate to 1.875 percent by the end of this year. At future meetings, it could hike the rates by a half-point.

Further, the Fed officials predict four additional hikes in 2023, elevating its benchmark rate to 2.8 percent. It would be the highest level since March 2008, leading to the rise in Borrowing costs for mortgage loans, credit cards, and auto loans.

What Objective Is Chair Jerome Powell Aiming For With Raised Rates?

Chair Jerome Powell is hopeful that the hikes in rates will be successful in achieving a narrow and challenging objective: Raising borrowing costs so that it can slow the growth and combat high inflation, but not so much as to collapse the economy into recession.

Despite that, many economists are concerned that inflation will reach 7.9 percent in February, the worst it has hit in four decades. Besides, with Russia’s invasion of Ukraine and the gas prices rising, the Fed might have to further raise rates than now, overturning the economy into recession.

The central bank acknowledges that it underestimated the persistence of high inflation after the Covid-19 pandemic hit. Meanwhile, many economists believe that the Fed started raising rates a little late, riskier its task.

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Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing