FOMC Begins to Raise Rates to Get Inflation into Check

By Pete Southern in LiveWire Economics Blog | March 19, 2022 11:27 | Tags: , , , ,

The Federal Open Market Committee raised the federal funds rate by 0.25 at the conclusion of Wednesday’s two-day policy meeting. This brings the target range from 0.25 to 0.50 percent. This is the latest step in the recovery of the US economy from the pandemic, and it’s the most significant to date to fight the highest levels of inflation in forty years. This is a new aggressive approach towards inflation which will drive borrowing costs to levels that are restricted by 2023.

The FOMC endorsed rate increases that would increase the benchmark fed funds rate (which banks use to charge each other for loans) to 1.75% by the end of 2022.

To slow economic growth, it is still likely that the Fed will raise rates between four and seven times over the next year. This is made a much more complicated process by the fact that the Fed has never tried to adjust rates upwards aggressively while the yield curve was so flat and volatility were so high. They are attempting to raise rates when the market is in a poor state.

What this means for stocks and commodity markets remains to be seen. Stock indices are way down from their recent highs, yet Gold has failed to head to new higher levels. Oil on the other hand seems to be where the speculation is happening.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.


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