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Bold decision

Inflation in the US increased due to the synergistic effect of many factors that the Fed could not influence. So this time, the Fed is not easy to achieve the dual target set out.

The fact that the US Federal Reserve (Fed) raising the basic interest rate at the present time is not surprising because the FED once announced that it will continue to raise the basic interest rate, but the increase level is surprising, even considered a turning point in history. history.

The Fed just raised the base rate

reuters

The Fed raises the base interest rate for USD 0.5 percentage points and this interest rate level after the increase is from 0.75 – 1%. Looking at the absolute value, the base interest rate is not that high. But this is the first time since 21 years, the FED raised the basic interest rate for the dollar at 0.5 percentage points instead of only 0.25 percentage points for a long time. It can be seen that the FED has made a very basic adjustment to the way it operates monetary policy and has made very bold decisions. Simultaneously affirming that it does not intend to raise the basic interest rate at 0.75 percentage points is the FED’s way of alleviating these concerns. financial market and money about the negative psychological impact of that boldness.

The purpose of the Fed is to fight inflation and reduce the rate of inflation but at the same time not to slow down economic growth. The Fed must act aggressively because inflation in the US continues to increase, currently at the highest level since 1981 (8.5%).

Whether or not the Fed will achieve this dual goal is uncertain. During the past 60 years, the FED has raised the basic interest rate 8 times by at least 0.5 percentage points, only once – in 1994 – the FED achieved both goals simultaneously, and in the other 7 times. then US economy all fell into recession. This time, the Fed raised the basic interest rate like that when there were clear signs that the US economy was no longer growing but about to reverse the direction of fluctuations. Inflation in the US increased due to the synergistic effect of many factors that the Fed could not influence. So this time, the Fed is not easy to achieve the dual target set out.

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