Control inflation with more aggressive interest rate hikes and quantitative tightening

The anticipated rise in interest rates has been the subject of much discussion for some time; however, for the Fed it is certainly a balancing act – and one in which it takes every step with extreme caution, which also means raising interest rates. In recent months, inflation has hit a near 40-year high of around 8%, and US consumers have seen the effects across all levels of consumer spending. The Federal Reserve has a healthy inflation target of around 2%, which it would like to achieve with sustained interest rate hikes over the next few years and ensuring that tighter monetary policy does not take a dive. the economy in a recession.

With the six possible fed funds rate hikes the Fed has hinted at for the year 2022, we can almost certainly expect sustained increases in interest rates for mortgages, auto loans, credit cards, student loans, etc Tighter monetary policy will likely lead to lower demand for big-ticket items like home purchases, car loans, home renovations, etc., as high interest rates will affect the affordability of these items by consumers, which will slow economic growth.

Many economists predict many economists predict the Fed’s interest rate hike is aggressive, both due to current inflation levels and other economic indicators: “With an unemployment rate below 4 %, inflation close to 8%, and the war in Ukraine may put even more upward pressure on prices, that’s what the Fed needs to do to get inflation under control,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

Beyond the aforementioned pressures on the domestic economy, the Ukraine/Russia conflict and continued supply chain disruption are also going to be ongoing concerns for the Federal Reserve, as cost increases related to gas prices are primarily due to the sudden rise in prices. in oil internationally, and many countries – which have always relied on oil supplies from Russia – are trying to find alternative fuel sources for their countries. This, along with the relaunch of manufacturing in East Asia, which has led to supply chain disruptions, will be an issue over which the United States has less control, and it will continue to be a dilemma. permanent.

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