Markets have been boosted by rising oil and gasoline prices following Russia’s invasion of Ukraine, growing inflationary concerns due to continued supply chain disruptions, and concerns about the Fed’s aggressive rate hikes.
Simply put, “it’s a pretty terrible storm,” said Joan Weiner, a professor of economics at George Washington University, what’s important.
Here’s what you need to know about the Federal Reserve Board as a result of this week: Tuesday and Wednesday and why it matters.
All eyes on wednesday
This is the largest rise in 22 years, following the Fed’s decision to raise interest rates by 0.5 percentage points in May.
Matt Egan of CNN said: The fact that the Fed is decisively moving away from zero shows confidence in the health of the employment market. However, the expected rise in interest rates highlights growing concerns about rising living costs.
Investors expect the Fed to raise its target range by nearly 4% by the end of the year. It increased from about 1% today. Contextually, as Eagan points out, the rate rose to 5.25% before the Great Recession.
But what does this mean for consumers? More from Eagan: Borrowing will be higher each time the Fed raises rates. This means higher interest costs on mortgages, mortgage credit lines, credit cards, student debt and car loans. Business loans are also more expensive for large and small businesses.
Americans will initially experience this policy shift through higher borrowing costs. Borrowing a mortgage or car loan is no longer insanely cheap. And the cash in your bank account isn’t that much, but you’ll eventually make something.
risk? Central banks are overdoing it, slowing the economy so much that it accidentally causes a recession and raises the unemployment rate.
Why such an aggressive rate hike?
To borrow the old wording, we need to take drastic measures in the drastic times.
If you feel your salary is running out faster than before, you’re not alone. Every American feels the effects of inflation … everywhere.
The latest consumer price index, the government’s basic inflation index, does not provide comfort elsewhere. The price of food purchased for home consumption has risen by 11.9% in the last 12 months. The shelter index, which measures rent and other housing costs, recorded a 5.5% increase. Used car prices have risen 16.1%.
The index rose 10.8% in May compared to a year ago, according to data released Tuesday by the Bureau of Labor Statistics. It’s still pretty high by historical standards, but it’s down from the revised 10.9% rise reported in the April reading.
Political science of economics
The Fed’s ability to curb inflation has enormous consequences for Washington.in the case of Future interim period The election will be a referendum of the economy. For example, the Democratic Party has a big problem.
Of course, Congressional presidents and Democrats are aware of the threat that a volatile economy poses to medium-term aspirations and the responsibilities it may bring in 2024. And it’s hard not to see the recent decisions from the White House through that lens.
The president told reporters over the weekend that the trip had nothing to do with global energy prices, but his adviser said the need to increase oil production to stabilize prices was a major reset in Saudi Arabia. He publicly stated that it was a driving force.
The good news for the White House is that the economy is not always a strong indicator of political outlook.
- A bad economy does not necessarily prevent reelection. As CNN’s Paul R. Ramonica writes: The market plunged 16.5% in the first 510 days of President Ronald Reagan, which was also a period of high inflation historically. The market was in the midst of a dot-com company collapse and struggled to recover in the aftermath of 9/11, causing stock prices to fall 25% in the early stages of President George W. Bush. However, both Reagan and George W. Bush were reelected.
- A good economy does not always ensure reelection. Meanwhile, early in his tenure at the Oval Office of George HW Bush and Donald Trump, stock prices soared by more than 20%. Neither was elected in the second term.
“This is what it’s all about. We believe we’ve made tremendous progress by laying a new foundation for the economy,” Biden said on Tuesday. “It will be clear when global inflation begins to recede.” Stated.
What if the Fed is unsuccessful?
The president has repeatedly emphasized the importance of having the Fed work independently and is confident in its ability to tackle inflation.
But what if the Fed goes into recession?
Indeed, the growing chorus of analysts believes that the Fed is too late for inflation to design a soft landing. However, there were rare cases where the central bank cooled the economy and restrained prices without involving the US economy in a recession. Once in 1965, and again in 1984 and 1994.
The good news is that the Fed is better at communicating that intent. “As long as the Fed is doing what it expects, things won’t work.”
CNN’s Chris Isidore and David Goldman contributed to this report.
Source: www.cnn.com
