While the economic world is under fear of a coming interest rate hike, economists and officials say that there is going to be more than three hikes this year.
As per economists and Federal Reserve officials, there is a high chance for the Fed declaring more than the forecasted three interest rate hikes this year. The reason they give for this is the rising inflation.
Many experts have already forecasted the hike as early as the March meeting. The inflation rate at a 40-year high and rapidly recovering labour market are reasons for this change.
But last week, the Fed declared that inflation is a severe threat and will face it aggressively.
For an economy that is this dynamic, the rate of return which the Fed takes to normalcy is slow. There is a possibility for more than expected three hikes this year.
Last month’s FOMC report shows three quarter-point increases of the federal funds rate in 2022. Now they expect it to go up to four or more.
Members say that the three is a good baseline, but if inflation is going on its way, then there would be four or more rate rises.
Members say that one should not be amazed at four rate rises this year if inflation remains a severe problem.
Even Wall Street economists have started to adjust the forecast of the Fed’s trajectory policy from three to four. Morgan Stanley, Wells Fargo, Goldman Sachs and RBC Capital Markets have been a few big names that changed the prediction.
Economists at JP Morgan say that it may not be limited within four, and there are chances for six and seven moves. The whole concept that the recovery will be a bed of roses is a mistake. This would be a wake-up call for them.
Another issue these officials are discussing is in how to begin the shrinking of the $9tn balance sheet. Many policymakers reacted quickly by saying that it has to be reduced rapidly after the first interest rate hike.
Further matters related to it, especially the pace of implementation, will be declared in the following meetings. But it could be a predictable affair that will not disrupt the market and will not require special arrangements.
With the supply chain crisis on the one side wreaking havoc over the price distribution of the products, the other side has the Great Resignation affecting the labour market. It is high among mid-career employees.
America being the centre of the capitalist world economy, the whole world will look at the economic movements of the USA.
The focus will be more on inflation and interest rate levels. The post-pandemic recovery of economies around the world depends on it.