Image credits: Ryan Quintal
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News Article

Fed Hikes Rate Again, Reaching Levels Not Seen Since 2008

By Sofía Hanna | Thu, 09/22/2022 - 09:05

Following the sixth Federal Open Market Committee (FOMC) meeting of the year, the US Federal Reserve announced an increase in the federal funds rate by three-quarters of a point (75 base points), leaving the rate at a range of 3 percent to 3.25 percent, a level not seen since 2008. This is not expected to be the last rate increase, as officials said that appropriate continued increases would be applied to allow inflation to return to its 2 percent target.

 

To bring inflation to 5.4 percent by year-end, the FOMC forecasts that the rate must peak at 4.4 percent by the end of 2022, leaving the US economy with an annual growth of 0.2 percent. It is also forecasted that the year’s rate will end at 4.6 percent, which is supposed to take pressure off inflation, allowing it to close the year with an average annual variation of 5.4 percent. This forecast contrasts with the 5.2 percent predicted in June. Inflation in the US reached 8.3 percent in August. By 2023, inflation is expected to stand at 4.6 percent, dropping to 3.9 percent in 2024, which will help it to reach 2.8 percent next year. The prospect for inflation to reach its target of 2 percent would then be possible in 2025.

 

Members of the central bank had already warned of continued increases. Jerome Powell, President, US Federal Reserve (Fed), assured that “the decisions will cause some pain to consumers” but that every effort is being made to have a “soft landing,” which is a combination of lower inflation, a strong labor market and no major damage to the US economy.

 

Yesterday, Mexico’s stock exchange traded with advances after a negative opening. The country’s economy is expected to have grown by 2.9 percent in August at a year-over-year rate, according to a preliminary estimate by the National Institute of Statistics and Geography (INEGI). The result would have been produced thanks to an annual increase of 3.1 percent in secondary activities, which include manufacturing, and 2.6 percent for the tertiary sector, which provides services. “In the first half of the year, the economy registered an expansion of 1.9 percent at an annual rate. For the rest of the year, we expect to see a full recovery of the services most affected by the pandemic and dynamism in employment and labor income that will support the growth of consumption; so that by the end of 2022, we expect a growth of 2. 4 percent per year,” said Rogelio Ramírez de la O, Minister of Finance and Public Credit. He also indicated that the Mexican economy will grow only 2.4 percent in 2022, a figure far from what was projected a year ago when the Gross Domestic Product (GDP) was estimated to grow by 4.1 percent. 

The data used in this article was sourced from:  
Federal Reserve, HACIENDA, INEGI, FOMC
Photo by:   Ryan Quintal, Unsplash
Sofía Hanna Sofía Hanna Journalist and Industry Analyst