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The Fed’s rate hike will slow ‘soon’ as risks of financial instability mount

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The Federal Reserve signaled on Wednesday that it may ease its accommodative policy soon as higher interest rates begin to slow the economy — a sign that the worst of the central bank’s rate hikes could be over, experts said. Let’s discuss how successful they’ve been in taming the worst peak. at 1980s prices.

Main facts

In a detailed summary of its meeting in early November, the Fed revealed that a “substantial majority” of officials believe that a reduction in the pace of rate hikes “will likely be appropriate soon,” the widely expected halving next month. -Paving the way for point growth.

While several officials said interest rates may need to be raised more than previously expected, they also acknowledged that economic growth forecasts have weakened over the past two months and that slowing growth threatens financial instability. maybe less.

The announcement came as more data shows that the economy has collapsed. S&P Global reported on Wednesday that November saw a “solid contraction in business activity” in the country’s private sector – the second worst since the early days of the pandemic. There is a decrease.

According to S&P, many companies blame a “rapid downturn” in business on the effects of inflation and higher interest rates, which have led to “greater hesitancy” among customers.

Fed officials have acknowledged their tightening will have economic ramifications: Wednesday, Esther George, president of the Kansas City Fed, told Wall Street Journal that history has shown that the current pace of tightening will have “painful consequences” and that it will not be possible to avoid a recession.

Stocks ticked off after the report, with the tech-heavy Nasdaq rising 1%, while the S&P 500 and Dow Jones Industrial Average rose 0.5% and 0.3%, respectively.

what to watch

The next Fed interest rate announcement is scheduled for December 14. Goldman predicts a half-point increase next month, followed by three-quarters of a point next year. This would raise the highest borrowing rate to 5.25% – the highest level since 2007.

main background

The latest inflation data showed that consumer prices rose less in October than economists had predicted. However, despite a month of delay, many economists warned against overly optimistic expectations that inflation has eased. “If this is a reform, we’ve set the bar very low,” said Greg McBride, chief financial analyst at Bankrate, adding that the “predominance” of inflation “remains problematic,” especially in terms of housing, food and energy prices. The S&P is up 10% from its October low, but is still down about 16% this year.

Read further

Fed Chairman Jerome Powell — haunted by the ghost of Paul Volcker — could sink the economy (Forbes)

The Fed raises rates by another 75 basis points (Forbes)

Recession fears are reaching new heights, even as inflation slows (Forbes)

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