Harvest Global Markets :

US Federal Reserve on Wednesday raised interest rates by 75 basis points for the second consecutive time in a row in an attempt to drop down high inflation in the country. The current inflation is 9.1% and consider the four-decade high. US stocks finished higher & US treasuries lower amid Fed chairman Jerome Powell’s comments to slow down the pace of yields. The Federal Reserve said that it would not react quickly against the most intense breakout of inflation since 1980s.

However, on press conference, it was assured that the economy is now on the neutral zone and may enter into the recession soon as far as the global economic turmoil continues. The sustainable economic activity and balanced job market not allowed to react aggressively. Jerome Powell in the press conference said, we are looking at the next consecutive economic data numbers to determine the validity of further monetary tightness.

Consumer prices haven’t yet breached the 10% annual mark this time – but at 9.1% they are close enough to raise the stakes for both the Fed and the Biden administration, which is particularly sensitive on the issue ahead of congressional elections in November. While Powell said he did not think a recession would be needed to fix the problem this time, he acknowledged that the economy was slowing and would likely need to slow more for the Fed to bring the pace of price increases back to earth.

According to various analysts, the policy rate has now reached to the level comparable with neutral economic impact, in an attempt to end pandemic-era spending of household & businesses at cheap money. The rate also reached to the point previous seen back in 2015-2018 period. Investors expect the Fed to raise its policy rate by at least half a percentage point at its Sept. 20-21 meeting.

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