US signals move to more gradual hikes in interest rates from 2023

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After rushing to boost borrowing costs earlier this year, the central bank has reportedly stated that authorities may start to lighten up on interest rate hikes as soon as this month.

In an effort to slow down inflation, the Federal Reserve has raised interest rates four times by a hefty 0.75 percentage point since June of this year.

While markets rose as a result of the remarks, the country thinks it is now time to take a step back and evaluate the effects of the changes.

As central banks substantially increase interest rates after years of historically low borrowing costs to halt price increases, the US has been at the forefront of a global trend. The Federal Reserves benchmark interest rate has increased from around zero in March to over 3.8%, which is the highest level since January 2008.

Interestingly, to reduce demand for expensive products like automobiles & homes, and to lower inflation, which is currently close to its highest level in 40 years, authorities raise interest rates, making it more costly to obtain credit.

However, it usually takes months for the effects of the changes to be felt. According to analysts, the Fed runs the risk of causing a major economic slowdown that would result in millions of job losses. Thats because firms can fail if economies contract because they earn less money.

It is worth mentioning that the full implications of Washington’s tightening policies so far are yet to be felt. The December meeting might be the first time where the decision to lower the rates might be made.

Besides, indications that US inflation may be slowing down might not be a far-reaching statement as it has decreased considerably from a high of 9.1% in June, dropping to 7.7% in October.

Notably, the Fed still intends to raise rates, albeit at a slower pace, and despite some positive trends, the country has a long way to go in regaining price stability.

Source credit:

https://www.bbc.com/news/business-63816114