Fed Plans To Fight Inflation With a Key Rate Hike, and Even More Hikes To Follow

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With the worst rate of inflation since the 1980s, the Federal Reserve has taken steps to help secure the economic future of America. With this unhealthy surge of inflation, the country is left wondering what to do about it, they had to step in and the decision to raise rates is not one they took lightly. Mind you a quarter-point hike is not the end of the world.

While rates had been pinned down to near zero since the start of the pandemic, this was allowing the value of the dollar to simply plummet. New spending expenses and other leftist bills continue to try and push down the value of the dollar so people think their $15 an hour is making a living. Unfortunately for this argument (as we have started to see some evidence of) is the costs for everything else go up when an entire industry bands together to demand more of their employers.

The Fed isn’t stopping there though. With an uncharacteristic bit of tipping their hand, they let it be known that this first quarter of a point would not be the only hike. They are eyeballing the idea of six more rate hikes, for a grand total of seven rate hikes on the year. The total goal they have in mind is a 2% hike, with the possibility of a half-point hike going on at once.

When the Central Bank raises rates, these rates mean businesses and consumers pay higher rates themselves. Fed Chair Jerome Powell has been vocal about how this is useful to America. “We’re acutely aware of the need to restore price stability. In fact, it’s a precondition for achieving the kind of labor market that we want. You can’t have maximum employment for any sustained period without price stability.” The problem with this is how inflation has already crippled certain sectors of the market, and how these higher rates will prevent people and businesses from borrowing. That in turn stifles growth.

Killing off good growth is a dangerous move for any business, but for the government, this can be a really bad move. We are already starting to see the results from a lack of technology and innovation in Russia. As sanctions continue to disrupt the daily lives of Russians across their country, they are left scrambling to find answers, just as we are left scrambling to try and rebuild our economy yet again.

We are fortunate that our economy has yet to suffer a total collapse, but we are in very dangerous waters with this current situation. With the choke on various parts of supply and demand for our economy and surging fuel prices, there needs to be an overall effort to help control things before inflation completely eats up the economy as a whole. Until there is that great and deep cooperation there will be no real change or growth in how the nation operates.

Roberto Perli, an economist at Piper Sandler is someone who is seeing the writing for a potential for a recession on the wall. “In the past, whenever the Fed has approached — let alone exceeded— neutral, the economy weakened sharply. The risk of recession in 2023 and beyond is increasing…All signs are that this is a strong economy. One that will be able to flourish in the face of less accommodative monetary policy.”

This mixture of a strong economy but a recession on the prowl is not one we want to see. With many seasoned investors being pushed around. By the young packs with meme stonks, crypto, and teams of people who can help swing the market, there is a lot at stake. They better hope they can find a way to work together. Otherwise, we could end up with severe inflation and a broken economy with sky-high interest rates.