What may U.S. Federal Reserve's Rate Hike Lead to?

What may U.S. Federal Reserve's Rate Hike Lead to?

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The U.S. the Federal Reserve (Fed) is holding another meeting today. Inflation in the country is rising and, according to Kommersant, reached 9.1% in July. In this regard, the Fed continues to tighten monetary policy. Analysts believe there may be a new interest rate hike.

The attention of Americans is riveted on what the Fed's decision will be this time as their future lives largely depend on it. Vladimir Bragin, director for analysis of financial markets and macroeconomics at Alfa-Capital Asset Management, said in an interview with Izvestia that the Fed is likely to raise interest rates by 75 basis points at once because of the high inflation in the country, i.e. in the end it will make 3.75-4.0% per annum. That is the decision most market participants are waiting for.

Some Democrats in the U.S. Congress have criticized a dramatic increase in the benchmark interest rate, arguing that such a decision could trigger a massive loss of jobs in the country. Taking all of these circumstances into account, 10 Democratic congressmen, according to Fox News, sent a letter to Fed Chairman Jerome Powell in which they note what the consequences for the labor market could be. In doing so, U.S. policymakers are attempting to slow the decline in the economic sector and halt the galloping inflation, which, according to media reports, has approached the level of a 40-year high.

In their letter to the Fed, according to Kommersant, the congressmen express concern and want more information about the effects of economic forecasts and whether the Fed intends to continue raising interest rates at such a high rate. At the same time, congressmen point out that the Fed's address to American families said that “they should expect pain in the coming months.”

Therefore, it is important for American citizens what scenario the Fed will offer for the future. According to the expert Vladimir Bragin, interest rates have been rising rapidly this year, so investors believe that the measures that have already been taken will be enough to slow down inflation in the country. They are waiting for hints from the Fed that the rate hike will end soon. However, there is also the possibility that the measures taken, as reported by Izvestia, will not be enough to slow inflation. According to Bragin, one cannot discount the fact that value-added chains are being disrupted on a global scale, and costs are rising. If the current inflation is transferred to wage inflation, then it will be much more difficult to stop the jump in prices.

Meanwhile, back in early October Olga Belenkaya, head of the macroeconomic analysis department at Finam Financial Group, said that the risk to the US economy was mainly connected with the fact that interest rates in this country have been rising at a high rate since the 1980s. According to Belenkaya, the rate range of 0-0.25% was fixed in March, but next year many members of the committee on open markets expect the rate to be several times higher, namely at the level of 4.5-4.75%. This will already be comparable with the maximum value of 2007, i.e., just before the global financial crisis erupted.

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