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| Photo Credit: AP |
Hikes in interest rate by the U.S. Federal Reserve may lead to inevitable recession, according to a report by The Associated Press. Federal Reserve Chair Jerome Powell has pledged to do whatever it takes to curb inflation, which has skyrocketed to a four-decade record high.
These measures by the Feds to curb rising
inflation by raising interest may possible lead to another U.S. recession.
Inflation report for the month of May saw
consumer prices rise by 8.8% from a year earlier, the biggest jump since 1981
which necessitated the moves by the Federal Reserve on Wednesday to raise its
benchmark interest rate by three-quarters of point, AP reports.
The last time the central bank raise its key
rate to such levels at once was in 1994. Traders and economists had expected a
rate hike of just half a percentage point Wednesday as against the 3/4 of a
point hike announced Wednesday.
According to AP, the “soft landing” the Fed
has hoped to achieve — slowing inflation to its 2% goal without derailing the
economy — is becoming both trickier and riskier than Powell had bargained for. The implication of a rate hike is that
businesses and consumers would have to pay more in order to borrow money to
fund their business or expenses which may discourage borrowing, weaken consumer
confidence, job growth and the overall economic growth.
As part of his 12-page response to the January
6 panel of the House select committee investigating the insurrection at
Congress, former President Trump described the Joe Biden led Administration as
“Swamp creatures” who “own the disaster”, referring to the skyrocketing
inflation the country is currently grappling with. He said the “corrupt
Establishment will be replaced b true patriots who will fight for our
freedoms”.
“The
Establishment is holding on as tightly as they can to their power as they watch
it slip from their grasp. Our country is in a nosedive,” he said. “Americans
are struggling to fill their gas tanks, feed their babies, educate their
children, hire employees, order supplies,” Mr Trump said of the difficulties
the country is facing owing to slow or absence of economic growth and inability
of Americans to afford the basic essentials of life due to high levels of
record inflation.
The Fed chair has sought to reassure the
country that all is well even when certain realities continue to stir Americans
in the face.
“There’s a path for us to get there,” Powell
said Wednesday, referring to a soft landing, according to AP. “It’s not getting
easier. It’s getting more challenging”
According to AP, the Fed hasn’t engineered a
soft landing since the mid-1990s and it’s even more difficult to see how the
Powell led Fed which was slow to recognize the depth of the massive inflation
threat to the economy could deal with the problem inherently.
“They are telling you: ‘We will do whatever it
takes to bring inflation to 2%,’ ” said Simona Mocuta, chief economist at State
Street Global Advisors, according to AP. “I hope the (inflation) data won’t
require them to do whatever they’re willing to do. There will be a cost.”
The Fed has also acknowledged that higher
rates will inflict some pain but so far has not seen possible recession. On
Wednesday, the Fed predicted that the economy will grow at a rate of about 1.7%
this year, a sharp drop from the 2.8% it had forecast in March.
Mr Powell has rejected any notion that the
Federal Reserve must inevitably cause recession as the price of taming
inflation.
“We’re not trying to induce a recession,” he
said, according to AP. “Let’s be clear about that.”
President Joe Biden’s $1.9 trillion stimulus
program in March of 2021 may have succeeded in making too much money available
thereby raising the prospect of inflation.
The Fed started raising interest rates about
three months ago. Just last month Mr Powell promised to keep raising rates
until the Fed sees “clear and convincing evidence that inflation is coming
down,” according to AP.
It appears there is no end in sight in this
macabre dance by the Feds. The recession
of 2008 during the regime of former President George Bush appears was a Republican
recession but it appears that President Joe Biden may be writing his name on
the marble of recession as the Democrats warm up for their own recession if things
continue to go soar. Only time will tell.