The Fed will quickly raise interest rates to cool down inflation

A senior Federal Reserve official said on May 10 that the central bank has the right tools and will act quickly to lower the rate. inflationary at an “unacceptably high” level as well as stabilizing the economy.

After raising the benchmark lending rate by 0.75 percentage points with two adjustments since March 2022, New York Fed President John Williams said he hopes the Fed’s Federal Open Market Committee “will urgently bring the federal funds rate back to a more normal level this year.”

Speaking at a conference in Eltville am Rhein, Germany, Mr. Williams expressed confidence that raising interest rates would “cool down” the economy and bring inflation down to around 2.5% next year, while maintaining it a strong economy.

Mr. Williams said the Fed’s rate hikes had a “particularly strong” effect in the very areas with the greatest imbalances and signs of overheating. This move will cool demand in interest-sensitive sectors, helping to reduce heat in the labor market and reduce the imbalance between employment and available labor supply.

In addition, the Fed official noted that other major central banks are also taking action and that combined efforts will help restore balance globally.

The Fed cut its benchmark lending rate to 0% when the COVID-19 pandemic began to flare up in March 2020, as part of an effort to avert an economic crisis.

But as the world’s largest economy grows again, a global supply shortage means demand outstrips supply. This sent prices skyrocketing, especially for homes and cars. The rate of inflation has therefore also increased to levels not seen since the 1980s, while employers face a shortage of workers.

In addition, the Russia-Ukraine tensions along with China’s re-imposition of blockade orders to control the COVID-19 epidemic in many major cities and manufacturing centers have exacerbated those inflationary pressures.

US financial markets have reacted to the Fed’s rate adjustment moves, with mortgage rates rising above 5%. But Wall Street has plunged over the past few sessions, with the S&P 500 index falling to its lowest level in more than a year amid investor concerns about the impact of higher interest rates and the possibility of a recession. strong.

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