The United States Federal Reserve has raised its interest rate by 25 Basis Points (B.P), in what seems to be a response to the persistent inflation that has not yet reduced to the desired range. This move was anticipated by the market, and despite the relatively mild increase, the US Fed Reserve has dropped its prior dovish tone, indicating the likelihood of more rate hikes in the near future.
The Federal Reserve Chairman confirmed that the decision to raise the interest rate was a unanimous one by the Federal Open Market Committee (FOMC), demonstrating unity in their efforts to improve the US economy. While some market experts had projected a slowdown in rate hikes due to recent financial turbulence, such as the collapse of four banks, the Fed’s interest rate hike shows that combating inflation and its effects on the economy remain a top priority.
The Fed’s move is not surprising given the recent uptick in inflation, which has been attributed to a combination of factors including supply chain disruptions, increased demand, and a surge in commodity prices. The Consumer Price Index (CPI), which measures the average change in prices over time for a basket of goods and services, has risen by 2.6% over the past 12 months, exceeding the Fed’s target rate of 2%. The Fed has signaled that it will tolerate inflation that runs above its 2% target for a period of time in order to achieve its long-term goals of maximum employment and price stability, but it has also made it clear that it is willing to take action to prevent inflation from spiraling out of control.
The interest rate hike is also likely to have implications for the US dollar and global financial markets. When the Fed raises interest rates, it makes the US dollar more attractive to investors, which can lead to a strengthening of the currency. This can, in turn, have an impact on global trade and investment flows, as well as on the prices of commodities such as oil and gold.
In conclusion, the US Federal Reserve’s decision to raise interest rates by 25 BPS is a signal of its commitment to combat inflation and bring the US economy back to its desired level. While there are concerns about the impact of the rate hike on the financial system and global markets, the Fed’s move is likely to have positive long-term implications for the US economy.
