Federal Reserve Goes Into Panic Mode To Avoid “Almost Inevitable” Recession
(ReliableNews.org) – In an effort to stave off an impending economic recession in the United States, the Federal Reserve made a move that will affect Americans all over this country. On May 4, the governmental body approved its second interest rate hike in the last two months. After reducing the fed rate to zero at the height of the coronavirus pandemic in 2020, the Federal Reserve raised interest rates by a quarter of a percentage point in March and half of a percentage point in May, for a total of a 0.75% increase overall and it isn’t done yet.
Anticipated Rate Hikes
With out-of-control inflation in the United States, the Fed has one tool on its belt to attempt to slow the increase, and that’s by raising interest rates. Theoretically, when interest rates rise, consumers spend less and bring down demand. A decrease in demand should lead to lower prices in an attempt to sell goods and services, thereby bringing inflation back down to reasonable levels. Unfortunately, increasing rates makes other things more expensive for Americans, like borrowing money from a bank to purchase a house, car, or any other big-ticket item.
According to the Associated Press, the government plans to raise interest rates at a historic pace over the next few months. They report there will be an increase of 0.5% in June and possibly again in July. Some economists believe there will be more incremental increases later, depending on how certain economic factors play out after the hikes. The AP stated the Fed would also pull back on buying Treasury and mortgage bonds in early summer, making credit even harder to obtain.
The Impact on Americans
Those who don’t plan to borrow money from a bank won’t likely see a direct effect of the interest rate hikes but will see the benefit if the Fed’s plan works to bring inflation down. That’s a big if, as some economists believe the government is too late and a recession is inevitable. Citizens who want to buy a house or need to buy a car will find they can’t afford to spend as much as they could just a few short months ago. Due to the increase in interest rates, monthly payments to pay back a new loan will be higher and might mean borrowers will qualify for less money or not qualify at all.
Federal Reserve Chair Jerome Powell admits he can’t predict how or if the Fed’s moves will impact the economy, so he can’t say how much or how little they will raise interest rates going forward. In the meantime, it seems like another hit in the wallet for Americans nationwide.
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