For now, the Fed is focused squarely on its inflation fight, and this week it’s set to announce another hefty hike in its benchmark interest rate.
and might even have shrunk in the first half of the year. Such evidence would typically lead the Fed to stop raising rates — or even cut them.For now, though, the Fed is focused squarely on its inflation fight, and this week it’s set to announce another hefty hike in its benchmark interest rate. Together with its previous rate increases, the Fed's moves will make borrowing costlier for individuals and companies and likely weaken the economy over time.
The Fed's rate hikes aren't suited to address all the causes of high inflation. Higher borrowing rates can reduce spending. But they cannot reverse other factors, notably the global shortages of food, energy, factory parts and other items, which have been worsened by Russia's war against Ukraine and COVID-19-related shutdowns in China.It will also likely take months for the Fed's higher rates to reduce spending on airline flights, restaurant meals and other services.
Though two straight quarters of negative growth are sometimes seen as an informal definition of recession, few economists think the economy is in a downturn. Instead, recessions are defined by the National Bureau of Economic Research, a nonprofit group of economists. The NBER assesses a broad range of data in determining recessions and places heavy weight on incomes and jobs. Economists note that employers have added 2.
last month in Portugal, Powell added: “Is there a risk that we would go too far? Certainly there’s a risk, but I wouldn’t agree that’s the biggest risk to the economy. The biggest mistake to make…would be to fail to restore price stability.”
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