Biden’s Economy Is About To Get Much Worse, Here’s Why

By authorizing a third consecutive three-quarter of a percentage point interest rate hike and indicating that there would probably be additional increases at the remaining two monetary policy sessions this year, the Federal Reserve resumed its effort to control inflation.

Officials decided to increase the benchmark federal funds rate to its highest level since 2008, between three and three and a half percent, on Wednesday.

Although markets suggested there was a remote possibility of an even greater increase, investors had anticipated a 75 basis point increase.

“Recent signs suggest that spending and manufacturing are growing moderately. Recent months have seen a strong increase in job creation, and the rate of unemployment has stayed low.” The Federal Open Market Committee declared unanimously at the conclusion of its two-day meeting on Wednesday that “inflation remains elevated, reflecting demand and supply imbalances associated with the pandemic, increased food and energy prices, and broader pricing pressures.”

Following each announcement of the Fed’s interest rate this year, the markets have risen because investors have determined repeatedly that Fed chair Jerome Powell appears to be indicating a softer approach in the future. Last month, Powell seemed to persuade the markets in an address at a monetary policy conference in Jackson Hole, Wyoming, that the Fed would be steadfast in its battle against inflation and would not lower rates next year even if the economy shrank severely.

As demand increased as the economy recovered and the Biden administration pushed through a fresh round of aggressive government stimulus, U.S. inflation started to pick up speed in March 2021. Fed policymakers first believed that inflation was most likely a transient phenomenon brought on by “transitory” elements like shattered supply networks and a lower labor force participation rate. Now that Fed officials are aware that this was a mistake, they are hastily raising rates in an effort to stop inflation from spreading deeper throughout the economy.

Over the past 12 months, core inflation, which does not include the cost of food and energy, has averaged 0.5 percent, resulting in a 6.3 percent increase in overall costs. With only a 0.3% increase in core prices in July, inflation seemed to be moderating. But that didn’t last long. Core prices increased by 0.6% in August.

Powell stated at Jackson Hole that the tightening of financial conditions by the Fed would probably hurt both families and companies. The labor market, according to the Fed, is dangerously congested, with just about two openings for every unemployed person.

Author: Scott Dowdy

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