In the likely case of a federal government shutdown anytime after funding run out on September&nbsp;30, Goldman Sachs Group Inc. predicts a short-term impact to the US economy, followed by a comeback.

Goldman's team of economic experts forecasts that a comprehensive government shutdown could lead to a weekly reduction of 0.2 percentage points in U.S. GDP growth, along with supplementary ramifications for the private sector. Goldman predicts that the losses incurred during the shutdown will be recuperated in the subsequent quarter.

In a communication to clients on Sunday, a senior U.S. political economist at Goldman Sachs conveyed, "It appears increasingly probable that the federal government will undergo a temporary shutdown later this year."

Furthermore, unlike the prior debate to increase the debt ceiling earlier this year, the current political dispute over spending lacks the potentially catastrophic consequences, as the United States faced the risk of defaulting on certain obligations. However, Goldman Sachs indicates&nbsp;that this "raises the chances of Congress failing to take action in a timely manner" regarding the funding legislation.

Additionally, forecast suggests that&nbsp;"previous shutdowns haven't triggered significant reactions in the markets," with stock performance remaining unchanged or even positive during shutdowns in 1995–96, 2013, and 2018–19.

Last month, lawmakers departed for an August recess without resolving the fiscal 2024 funding bills. The House is not slated to reconvene until September 12, with a to-do list encompassing the clearance of 11 out of the 12 annual appropriations bills and the resolution of disparities with the Senate in just 12 scheduled working days of the month.

(Inputs from Bloomberg)

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In the likely case of a federal government shutdown anytime after funding run out on September 30, Goldman Sachs Group Inc. predicts a short-term impact to the US economy, followed by a comeback.

In the likely case of a federal government shutdown anytime after funding run out on September 30, Goldman Sachs Group Inc. predicts a short-term impact to the US economy, followed by a comeback. Goldman's team of economic experts forecasts that a comprehensive government shutdown could lead to a weekly reduction of 0.2 percentage points in U.S. GDP growth, along with supplementary ramifications for the private sector. Goldman predicts that the losses incurred during the shutdown will be recuperated in the subsequent quarter. In a communication to clients on Sunday, a senior U.S. political economist at Goldman Sachs conveyed, "It appears increasingly probable that the federal government will undergo a temporary shutdown later this year." Furthermore, unlike the prior debate to increase the debt ceiling earlier this year, the current political dispute over spending lacks the potentially catastrophic consequences, as the United States faced the risk of defaulting on certain obligations. However, Goldman Sachs indicates that this "raises the chances of Congress failing to take action in a timely manner" regarding the funding legislation. Additionally, forecast suggests that "previous shutdowns haven't triggered significant reactions in the markets," with stock performance remaining unchanged or even positive during shutdowns in 1995–96, 2013, and 2018–19. Last month, lawmakers departed for an August recess without resolving the fiscal 2024 funding bills. The House is not slated to reconvene until September 12, with a to-do list encompassing the clearance of 11 out of the 12 annual appropriations bills and the resolution of disparities with the Senate in just 12 scheduled working days of the month. (Inputs from Bloomberg) WATCH WION LIVE HERE

Goldman Sachs predicts US GDP and markets to withstand expected government shutdown

It is late August, meaning that the annual conference of the Kansas City Fed, which will be attended by leading central bankers from all around the world is to take place in Jackson Hole. As usual, everyone is particularly interested in hearing what Federal Reserve Chair Jerome Powell, who is scheduled to speak Friday morning, might have to say.

The minutes of the July policy meeting held by the US central bank were recently released, and it was clear from the records that most Federal Reserve members at the time viewed a large upside risk to inflation, which may have necessitated even further tightening. On the other hand, two also backed maintaining current rates, the first significant indication of disagreement over the course of action in a long time.

Key data points since that meeting have demonstrated that price and wage pressures are continuing to diminish, which should support the argument for stopping rate hikes. Although consumer expenditure and labor-market activity indices have continued to show improvement, authorities may nonetheless be concerned about the likelihood of an ongoing decline in inflation.

A crucial question is how Powell might be considering those developments. In addition, any hints as to how the central bank might be formulating a strategy for rate decreases in 2024 will also be closely watched. Otherwise, participants will take interest in active discussions regarding “Structural Shifts in the Global Economy,” the retreat’s main theme this year.

(With inputs from agencies)

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It is late August, meaning that the annual conference of the Kansas City Fed, which will be attended by leading central bankers from all around the world is to take place in Jackson Hole.

It is late August, meaning that the annual conference of the Kansas City Fed, which will be attended by leading central bankers from all around the world is to take place in Jackson Hole. As usual, everyone is particularly interested in hearing what Federal Reserve Chair Jerome Powell, who is scheduled to speak Friday morning, might have to say. The minutes of the July policy meeting held by the US central bank were recently released, and it was clear from the records that most Federal Reserve members at the time viewed a large upside risk to inflation, which may have necessitated even further tightening. On the other hand, two also backed maintaining current rates, the first significant indication of disagreement over the course of action in a long time. Key data points since that meeting have demonstrated that price and wage pressures are continuing to diminish, which should support the argument for stopping rate hikes. Although consumer expenditure and labor-market activity indices have continued to show improvement, authorities may nonetheless be concerned about the likelihood of an ongoing decline in inflation. A crucial question is how Powell might be considering those developments. In addition, any hints as to how the central bank might be formulating a strategy for rate decreases in 2024 will also be closely watched. Otherwise, participants will take interest in active discussions regarding “Structural Shifts in the Global Economy,” the retreat’s main theme this year. (With inputs from agencies) WATCH WION LIVE HERE

All eyes now on Federal Reserve Chief Powell in Jackson Hole: Report  

U.S. banks have tightened their lending standards for both businesses and households in the second quarter of 2023, and they anticipate maintaining this cautious approach for the rest of the year, according to a survey conducted by the Federal Reserve and cited by Bloomberg. The survey of loan officers revealed a multitude of reasons behind this tightening, including a volatile economic outlook, declining credit quality in loan portfolios, concerns about bank funding costs, and deposit outflows.

Federal Reserve Chairman Jerome Powell commented on the survey, acknowledging that the overall lending conditions are tight and continue to tighten. As a result of these conditions, the Fed took decisive action by raising interest rates to their highest level since March 2001.

Factors at play

Among the factors contributing to the banks' increased caution are worries about the potential impact of legislative, supervisory, or accounting changes. Recently, the Federal Reserve and other regulators proposed a 16 per cent aggregate increase in capital requirements for banks with assets exceeding $100 billion, aiming to strengthen lenders against potential future challenges.

In response to the impending regulatory changes, some banks are already taking preventive measures, pulling back on lending or issuing warnings about potential future restrictions. The survey also revealed a decline in demand for new loans across various categories, affecting consumers, businesses, and commercial and residential real estate sectors.

Throughout the year, growth in U.S. bank lending has slowed, coinciding with the Federal Reserve's aggressive campaign to combat inflation by raising interest rates and subsequently increasing borrowing costs. As a result, banks are setting aside more funds for future loan losses, signifying their apprehension about worsening credit conditions.

Loan demand outlook in focus

Despite the tightening lending landscape, JPMorgan Chase's Chief Financial Officer, Jeremy Barnum, expressed optimism about reasonably robust loan card growth, particularly in auto loans. However, he also stated that the outlook for loan demand in other areas, including consumer and wealth sectors, is not as promising.

Slower bank lending can serve as a potential recession indicator, though it is not always definitive. According to Apollo's Chief Economist, Torsten Slok, the 'maximum negative impact' of tighter credit conditions on the gross domestic product (GDP) can take up to a year and a half to materialise.

While the possibility of a recession was a concern, the latest data from the Bureau of Labour Statistics has shown that the U.S. economy grew faster in the second quarter compared to the first. As a result, the growing consensus suggests that the immediate threat of a recession is diminishing.

Federal Reserve Chairman Jerome Powell echoed this sentiment, stating that the strong economic performance has instilled confidence in the country's economic outlook. Despite this optimism, the cautious approach taken by banks toward lending underscores the ongoing uncertainty surrounding the economic landscape.

(With Inputs from Agencies)

U.S. banks have tightened their lending standards for both businesses and households in the second quarter of 2023, and they anticipate maintaining this cautious approach for the rest of the year, according to a survey conducted by the Federal Reserve and cited by Bloomberg.

U.S. banks have tightened their lending standards for both businesses and households in the second quarter of 2023, and they anticipate maintaining this cautious approach for the rest of the year, according to a survey conducted by the Federal Reserve and cited by Bloomberg. The survey of loan officers revealed a multitude of reasons behind this tightening, including a volatile economic outlook, declining credit quality in loan portfolios, concerns about bank funding costs, and deposit outflows. Federal Reserve Chairman Jerome Powell commented on the survey, acknowledging that the overall lending conditions are tight and continue to tighten. As a result of these conditions, the Fed took decisive action by raising interest rates to their highest level since March 2001. Factors at play Among the factors contributing to the banks' increased caution are worries about the potential impact of legislative, supervisory, or accounting changes. Recently, the Federal Reserve and other regulators proposed a 16 per cent aggregate increase in capital requirements for banks with assets exceeding $100 billion, aiming to strengthen lenders against potential future challenges. In response to the impending regulatory changes, some banks are already taking preventive measures, pulling back on lending or issuing warnings about potential future restrictions. The survey also revealed a decline in demand for new loans across various categories, affecting consumers, businesses, and commercial and residential real estate sectors. Throughout the year, growth in U.S. bank lending has slowed, coinciding with the Federal Reserve's aggressive campaign to combat inflation by raising interest rates and subsequently increasing borrowing costs. As a result, banks are setting aside more funds for future loan losses, signifying their apprehension about worsening credit conditions. Loan demand outlook in focus Despite the tightening lending landscape, JPMorgan Chase's Chief Financial Officer, Jeremy Barnum, expressed optimism about reasonably robust loan card growth, particularly in auto loans. However, he also stated that the outlook for loan demand in other areas, including consumer and wealth sectors, is not as promising. Slower bank lending can serve as a potential recession indicator, though it is not always definitive. According to Apollo's Chief Economist, Torsten Slok, the 'maximum negative impact' of tighter credit conditions on the gross domestic product (GDP) can take up to a year and a half to materialise. While the possibility of a recession was a concern, the latest data from the Bureau of Labour Statistics has shown that the U.S. economy grew faster in the second quarter compared to the first. As a result, the growing consensus suggests that the immediate threat of a recession is diminishing. Federal Reserve Chairman Jerome Powell echoed this sentiment, stating that the strong economic performance has instilled confidence in the country's economic outlook. Despite this optimism, the cautious approach taken by banks toward lending underscores the ongoing uncertainty surrounding the economic landscape. (With Inputs from Agencies)

Cash flow slowdown: U.S. banks turn cautious on lending in 2023

In an expected but significant turn of events, the US Federal Reserve recently raised the interest rate benchmark range to a staggering 5.25 percent - the highest in over two decades.

Fed's chair, Jerome Powell, offered a vision of a "soft landing" for the economy, giving hope to some. However, he quickly quashed any hopes of rate cuts this year, causing turbulence in the stock market. While the S&amp;P500 remained stable, ending Wednesday's trading session flat, the tech-heavy Nasdaq experienced a slight stumble, reflecting the delicate balance of market sentiment.

As the dust of monetary proactive measures settled, the benchmark 10-year Treasury yield showed signs of oscillation, slightly dipping to 3.8 percent after reaching a height of 3.9 percent on Tuesday. Bonds in the United States rode the tide of uncertainty, rising amidst the storm of financial speculation.

The above reading highlights how inflation and the responses to it can impact people's savings and create wobbling effects on the financial market. Let's delve into the concept of inflation and examine how the Federal Reserve's proactive measures can influence the financial market.

1. Fed’s monetary policy impacting debt market

Since 2001, inflation has made a strong comeback in the U.S., compelling the Federal Reserve to consistently implement robust measures to adjust its monetary policy, given that the inflation rate reached levels not seen in over 40 years.

The Federal Reserve's new policy shift was clearly reflected in the bond market. The yield on the 10-year US Treasury note, an important indicator for the bond market, increased from 1.52 percent at the end of 2021 to over 4 percent this month, marking its highest level in over 10 years.

Simultaneously, the yield on the 3-month US Treasury bill experienced a significant increase, rising from 0.06 percent at the end of 2021 to nearly 5.50 percent in mid-July 2023. These changes in interest rates also had an impact on the stock market.

2. Increasing interest rate impacting equity market

Over the last 30 years, US equities have shown a tendency to grow in value when inflation has accelerated, although the association has not been very strong. Larger firms have a stronger link with inflation than mid-sized firms, and mid-sized firms have a stronger relationship than smaller firms. As inflation rises, the price of foreign equities in developed markets falls, and the price of emerging market stocks falls even further.

However, when interest rates increase, it can impact the stock market in several ways, such as:

Slower Economic Growth: Growing rates can lead to slower economic growth, which can affect the earnings of U.S. companies. When economic growth slows down, businesses may not perform as well, ultimately putting pressure on stock prices.

Attractive Investment Alternatives: Other investment options like bonds and certificates of deposit may become more appealing to investors because they offer higher yields. This can make investors less interested in buying stocks, especially if the outlook for future interest rates remains positive.

Impact on Stock Prices: If a company's future earnings fail to meet investors' expectations, their stock prices may go down. This measure is represented by the P/E ratio which means, price investors are willing to pay for a company’s stock relative to its earnings .

This situation took place in 2022 when stocks with high P/E ratios got the hardest hit when interest rates increased, including technology companies and others that performed well during the pandemic.

Higher Borrowing Costs: Higher interest rates could lead to higher borrowing costs for companies, cutting into their profits.

Some companies borrowed money at lower rates in the past, but now they may have to pay more interest on new debt. This could potentially result in lower earnings for these companies and could impact their stock prices as well.

3. Uncertainties in the stock market persist

Amidst multiple interest rate hikes by the Federal Reserve in 2023, the stock market's future remains uncertain. Fed Chair Jerome Powell has signaled that rates will remain high for an extended period and ruled out any immediate rate cuts. The Fed is striving to strike a delicate balance between economic growth and controlling inflation without triggering a recession.

Nevertheless, there is a glimmer of hope in companies' performances. If inflation declines, it could prove beneficial for the stock market. While rising interest rates may pose challenges for stocks, there are still opportunities depending on how well companies perform and meet expectations.

Despite the uncertainty, investors must exercise caution and closely monitor corporate earnings in this environment of inflation and high interest rates. Strong company performance and growth potential could have a positive impact on the stock market. However, volatility may persist, and investors should be prepared for fluctuations.

&nbsp;

&nbsp;

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In an expected but significant turn of events, the US Federal Reserve recently raised the interest rate benchmark range to a staggering 5.25 percent - the highest in over two decades.

In an expected but significant turn of events, the US Federal Reserve recently raised the interest rate benchmark range to a staggering 5.25 percent - the highest in over two decades. Fed's chair, Jerome Powell, offered a vision of a "soft landing" for the economy, giving hope to some. However, he quickly quashed any hopes of rate cuts this year, causing turbulence in the stock market. While the S&P500 remained stable, ending Wednesday's trading session flat, the tech-heavy Nasdaq experienced a slight stumble, reflecting the delicate balance of market sentiment. As the dust of monetary proactive measures settled, the benchmark 10-year Treasury yield showed signs of oscillation, slightly dipping to 3.8 percent after reaching a height of 3.9 percent on Tuesday. Bonds in the United States rode the tide of uncertainty, rising amidst the storm of financial speculation. The above reading highlights how inflation and the responses to it can impact people's savings and create wobbling effects on the financial market. Let's delve into the concept of inflation and examine how the Federal Reserve's proactive measures can influence the financial market. 1. Fed’s monetary policy impacting debt market Since 2001, inflation has made a strong comeback in the U.S., compelling the Federal Reserve to consistently implement robust measures to adjust its monetary policy, given that the inflation rate reached levels not seen in over 40 years. The Federal Reserve's new policy shift was clearly reflected in the bond market. The yield on the 10-year US Treasury note, an important indicator for the bond market, increased from 1.52 percent at the end of 2021 to over 4 percent this month, marking its highest level in over 10 years. Simultaneously, the yield on the 3-month US Treasury bill experienced a significant increase, rising from 0.06 percent at the end of 2021 to nearly 5.50 percent in mid-July 2023. These changes in interest rates also had an impact on the stock market. 2. Increasing interest rate impacting equity market Over the last 30 years, US equities have shown a tendency to grow in value when inflation has accelerated, although the association has not been very strong. Larger firms have a stronger link with inflation than mid-sized firms, and mid-sized firms have a stronger relationship than smaller firms. As inflation rises, the price of foreign equities in developed markets falls, and the price of emerging market stocks falls even further. However, when interest rates increase, it can impact the stock market in several ways, such as: Slower Economic Growth: Growing rates can lead to slower economic growth, which can affect the earnings of U.S. companies. When economic growth slows down, businesses may not perform as well, ultimately putting pressure on stock prices. Attractive Investment Alternatives: Other investment options like bonds and certificates of deposit may become more appealing to investors because they offer higher yields. This can make investors less interested in buying stocks, especially if the outlook for future interest rates remains positive. Impact on Stock Prices: If a company's future earnings fail to meet investors' expectations, their stock prices may go down. This measure is represented by the P/E ratio which means, price investors are willing to pay for a company’s stock relative to its earnings . This situation took place in 2022 when stocks with high P/E ratios got the hardest hit when interest rates increased, including technology companies and others that performed well during the pandemic. Higher Borrowing Costs: Higher interest rates could lead to higher borrowing costs for companies, cutting into their profits. Some companies borrowed money at lower rates in the past, but now they may have to pay more interest on new debt. This could potentially result in lower earnings for these companies and could impact their stock prices as well. 3. Uncertainties in the stock market persist Amidst multiple interest rate hikes by the Federal Reserve in 2023, the stock market's future remains uncertain. Fed Chair Jerome Powell has signaled that rates will remain high for an extended period and ruled out any immediate rate cuts. The Fed is striving to strike a delicate balance between economic growth and controlling inflation without triggering a recession. Nevertheless, there is a glimmer of hope in companies' performances. If inflation declines, it could prove beneficial for the stock market. While rising interest rates may pose challenges for stocks, there are still opportunities depending on how well companies perform and meet expectations. Despite the uncertainty, investors must exercise caution and closely monitor corporate earnings in this environment of inflation and high interest rates. Strong company performance and growth potential could have a positive impact on the stock market. However, volatility may persist, and investors should be prepared for fluctuations.

Decoded: How the Federal Reserve's war against inflation impacts the US markets

The U.S. Federal Reserve on Wednesday&nbsp;raised the interest rate by&nbsp;0.25&nbsp;percentage points&nbsp;to 5.5 percent. This is the highest interest level seen&nbsp;in the last 22 years.&nbsp;

During a press conference following the latest policy move, Powell emphasized that the central bank is closely monitoring incoming data, particularly for indications of the economy moving towards a period of "below-trend" growth, which he believes is necessary for inflation to decrease.

Following the release of the Federal Reserve's policy statement, Treasury rates in the United States experienced volatility, leading to a decline. However, U.S. stocks concluded the day with a relatively flat performance. Futures markets indicated minimal fluctuations in betting on the trajectory of Fed rate increases for the remainder of the year, with only a slight possibility of a hike in September.

Fed's inflation tackling and indicator monitoring

The U.S. Federal Reserve's decision to raise interest rates, as anticipated, followed two days of meetings. Inflation remains a persistent concern for the central bank, prompting the 11th rate hike in the last 12 meetings aimed at curbing the surging prices.

Nonetheless, the central bank remains vigilant, ready to respond to the evolving economic data and inflation outlook, while also considering the risks associated with falling inflation and weak economic indicators. Powell emphasized that decisions will be made on a meeting-by-meeting basis, carefully evaluating the incoming data's implications on economic activity and inflation dynamics, along with the balance of risks.

Key price indicators are continuing to rise at a rate that exceeds the Fed's target, with inflation showing a slowdown but no noticeable impact on the job market, which maintains a low unemployment rate of 3.6 percent. Economic growth has remained above the Fed's estimated 1.8 percent trend rate, with analysts predicting similar growth in second-quarter GDP.

Possibility of another hike in September

While Federal Reserve Chair Jerome Powell expressed optimism for a "soft landing" of the economy, wherein inflation decreases, unemployment remains low, and a recession is averted, his remarks on the necessity for slower development hint at a possible inclination towards higher rates to exert greater pressure on demand.

Powell stated, "It is certainly possible that we would raise the (federal) funds rate again at the September meeting if the data warranted it, and I would also say that it is possible that we would choose to hold steady at that meeting if that was the right policy call."

While the Fed remains open to future rate adjustments, Powell cautioned against expecting any rate cuts in the immediate future, affirming, "We'll be comfortable cutting rates when we're comfortable cutting rates, and that won't be this year."

Fed Chair Jerome Powell acknowledged the positive development of reduced inflation from last year's highs. However, as the central bank navigates a challenging phase in its fight against inflation, it faces the delicate task of balancing the need for future rate hikes against the risks of going too far, potentially resulting in economic losses.

&nbsp;

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The U.S. Federal Reserve on Wednesday raised the interest rate by 0.25 percentage points to 5.5 percent. This is the highest interest level seen in the last 22 years.

The U.S. Federal Reserve on Wednesday raised the interest rate by 0.25 percentage points to 5.5 percent. This is the highest interest level seen in the last 22 years. During a press conference following the latest policy move, Powell emphasized that the central bank is closely monitoring incoming data, particularly for indications of the economy moving towards a period of "below-trend" growth, which he believes is necessary for inflation to decrease. Following the release of the Federal Reserve's policy statement, Treasury rates in the United States experienced volatility, leading to a decline. However, U.S. stocks concluded the day with a relatively flat performance. Futures markets indicated minimal fluctuations in betting on the trajectory of Fed rate increases for the remainder of the year, with only a slight possibility of a hike in September. Fed's inflation tackling and indicator monitoring The U.S. Federal Reserve's decision to raise interest rates, as anticipated, followed two days of meetings. Inflation remains a persistent concern for the central bank, prompting the 11th rate hike in the last 12 meetings aimed at curbing the surging prices. Nonetheless, the central bank remains vigilant, ready to respond to the evolving economic data and inflation outlook, while also considering the risks associated with falling inflation and weak economic indicators. Powell emphasized that decisions will be made on a meeting-by-meeting basis, carefully evaluating the incoming data's implications on economic activity and inflation dynamics, along with the balance of risks. Key price indicators are continuing to rise at a rate that exceeds the Fed's target, with inflation showing a slowdown but no noticeable impact on the job market, which maintains a low unemployment rate of 3.6 percent. Economic growth has remained above the Fed's estimated 1.8 percent trend rate, with analysts predicting similar growth in second-quarter GDP. Possibility of another hike in September While Federal Reserve Chair Jerome Powell expressed optimism for a "soft landing" of the economy, wherein inflation decreases, unemployment remains low, and a recession is averted, his remarks on the necessity for slower development hint at a possible inclination towards higher rates to exert greater pressure on demand. Powell stated, "It is certainly possible that we would raise the (federal) funds rate again at the September meeting if the data warranted it, and I would also say that it is possible that we would choose to hold steady at that meeting if that was the right policy call." While the Fed remains open to future rate adjustments, Powell cautioned against expecting any rate cuts in the immediate future, affirming, "We'll be comfortable cutting rates when we're comfortable cutting rates, and that won't be this year." Fed Chair Jerome Powell acknowledged the positive development of reduced inflation from last year's highs. However, as the central bank navigates a challenging phase in its fight against inflation, it faces the delicate task of balancing the need for future rate hikes against the risks of going too far, potentially resulting in economic losses. WATCH WION LIVE HERE

Federal Reserve raises rates, Powell hints at another hike in September

In a closely watched move, the Federal Reserve is poised to raise interest rates by 0.25 percent this week. This anticipated hike would mark the central bank's 11th rate increase in just 18 months, setting the stage for a significant monetary shift.

The Federal Reserve's two-day policy meeting will commence today, with the monetary policy decision slated to be announced on Wednesday. Market participants, investors, and analysts are on high alert as they await further insights into the central bank's strategy and projections, which could have significant implications for the global financial landscape.

This week's decision, unlike the June announcement, will not see central bank officials accompany it with revised economic estimates. Notably, last month's predictions indicated that two additional rate increases would be necessary in 2023 to align with the Fed's target of two&nbsp;percent.

Federal Reserve Chair Jay Powell is expected to address the public with a crucial announcement that is garnering significant attention from Wall Street. It is widely anticipated that Powell will leave the door open for further rate increases later this year, citing concerns about inflation and lending conditions.

With mounting inflationary pressures and economic uncertainties, Powell's address is highly anticipated, as it may set the course for the Federal Reserve's monetary policy in the coming months. Wall Street and investors alike await insights into the central bank's strategies and outlook, as they prepare for potential impacts on financial markets and lending conditions.

Traders have been closely monitoring the situation, with a 99.8 percent chance already placed on the Fed's announcement of a 0.25 percent rate hike. The decision comes as consumer prices inched up at the slowest rate since March 2021, with headline CPI reaching three&nbsp;percent. However, inflation surged 4.8 percent year on year on a "core' basis, which excludes food and gas expenses. This level of inflation exceeds the Fed's target of 2 percent, adding to the complexity of the central bank's decision-making process.

The Federal Reserve's anticipated&nbsp;rate hike has prompted discussions among officials and economists. Fed governor Chris Waller and Dallas Fed president Lorie Logan have both reaffirmed their forecast that this rate move is the first step of a two-phase process aimed at tackling inflation and achieving a soft landing for the economy. However, not everyone shares this view. Some Wall Street economists believe that this week's rate hike may mark the conclusion of the central bank's aggressive tightening cycle, as inflation data shows signs of easing.

With lingering inflation concerns, the financial world eagerly awaits the implications of the Fed's decision. The impact on the economy, Wall Street, and Main Street is substantial, leading experts to diverge on the appropriate course of action. The central bank's delicate balancing act, seeking to address inflationary pressures while maintaining economic growth, leaves the question of whether this rate hike is merely the beginning or the end of a monetary symphony.

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In a closely watched move, the Federal Reserve is poised to raise interest rates by 0.25 percent this week. This anticipated hike would mark the central bank's 11th rate increase in just 18 months, setting the stage for a significant monetary shift.

In a closely watched move, the Federal Reserve is poised to raise interest rates by 0.25 percent this week. This anticipated hike would mark the central bank's 11th rate increase in just 18 months, setting the stage for a significant monetary shift. The Federal Reserve's two-day policy meeting will commence today, with the monetary policy decision slated to be announced on Wednesday. Market participants, investors, and analysts are on high alert as they await further insights into the central bank's strategy and projections, which could have significant implications for the global financial landscape. This week's decision, unlike the June announcement, will not see central bank officials accompany it with revised economic estimates. Notably, last month's predictions indicated that two additional rate increases would be necessary in 2023 to align with the Fed's target of two percent. Federal Reserve Chair Jay Powell is expected to address the public with a crucial announcement that is garnering significant attention from Wall Street. It is widely anticipated that Powell will leave the door open for further rate increases later this year, citing concerns about inflation and lending conditions. With mounting inflationary pressures and economic uncertainties, Powell's address is highly anticipated, as it may set the course for the Federal Reserve's monetary policy in the coming months. Wall Street and investors alike await insights into the central bank's strategies and outlook, as they prepare for potential impacts on financial markets and lending conditions. Traders have been closely monitoring the situation, with a 99.8 percent chance already placed on the Fed's announcement of a 0.25 percent rate hike. The decision comes as consumer prices inched up at the slowest rate since March 2021, with headline CPI reaching three percent. However, inflation surged 4.8 percent year on year on a "core' basis, which excludes food and gas expenses. This level of inflation exceeds the Fed's target of 2 percent, adding to the complexity of the central bank's decision-making process. The Federal Reserve's anticipated rate hike has prompted discussions among officials and economists. Fed governor Chris Waller and Dallas Fed president Lorie Logan have both reaffirmed their forecast that this rate move is the first step of a two-phase process aimed at tackling inflation and achieving a soft landing for the economy. However, not everyone shares this view. Some Wall Street economists believe that this week's rate hike may mark the conclusion of the central bank's aggressive tightening cycle, as inflation data shows signs of easing. With lingering inflation concerns, the financial world eagerly awaits the implications of the Fed's decision. The impact on the economy, Wall Street, and Main Street is substantial, leading experts to diverge on the appropriate course of action. The central bank's delicate balancing act, seeking to address inflationary pressures while maintaining economic growth, leaves the question of whether this rate hike is merely the beginning or the end of a monetary symphony. WATCH WION LIVE HERE

Federal Reserve likely to resume rate hikes following June pause

Amid the mounting U.S. debt, the cost of servicing debt has seen a 25 percent surge in the the ongoing&nbsp;fiscal year (October to June), reaching a staggering $652 billion.&nbsp;According to the US Department of Treasury, the&nbsp;weighted average interest for total outstanding debt is at 2.76 per cent, the&nbsp;highest level since February 2012.&nbsp;Consequently, this has contributed to the significant increase in the federal budget deficit.&nbsp;

The Treasury Department said on Thursday that&nbsp;the federal government deficit has exceeded $1.39 trillion over the nine-month period ending in June, marking a whopping&nbsp;170 percent rise compared to the corresponding period in the previous year.&nbsp;Moreover, the federal government's deficit has nearly tripled since October 2022, further exacerbating the colossal debt burden of $32 trillion.

The increasing deficit is likely to fuel the efforts of Republican lawmakers to reduce federal spending. Although the Grand Old Party, which holds&nbsp;the control of the House, recently reached an agreement with the Biden administration to temporarily suspend the debt ceiling, a fresh clash over spending for the upcoming fiscal year 2024, commencing on October 1, could be&nbsp;on the horizon.

Factors contributing to the expansion of the budget deficit

Rising interest rates have played a significant role, as the US Federal Reserve has increased its benchmark rate by 5 percentage points since initiating rate hikes in March of the previous year. Currently, five-year Treasury rates stand at approximately 3.96 per cent, a notable rise from 1.35 per cent&nbsp;at the start of the year. Consequently, as lower-yielding assets mature, the Treasury's interest rates on existing debt will steadily increase.

A drop in tax revenue has also been a contributing factor, primarily due to a decline in capital gains tax collection. The decline in government revenue can be attributed to the decrease in stock, bond, and other asset prices observed in the previous year. Tax revenue between October and June was 11 percent lower compared to the same period a year ago.

There has been a surge in government spending, with a significant jump of 10 percent. This surge can be attributed, in part, to the impact of inflation. The rise in inflation has necessitated higher expenditures across multiple categories of government spending.

(With inputs from agencies)

Amid the mounting U.S. debt, the cost of servicing debt has seen a 25 percent surge in the the ongoing fiscal year (October to June), reaching a staggering $652 billion.

Amid the mounting U.S. debt, the cost of servicing debt has seen a 25 percent surge in the the ongoing fiscal year (October to June), reaching a staggering $652 billion. According to the US Department of Treasury, the weighted average interest for total outstanding debt is at 2.76 per cent, the highest level since February 2012. Consequently, this has contributed to the significant increase in the federal budget deficit. The Treasury Department said on Thursday that the federal government deficit has exceeded $1.39 trillion over the nine-month period ending in June, marking a whopping 170 percent rise compared to the corresponding period in the previous year. Moreover, the federal government's deficit has nearly tripled since October 2022, further exacerbating the colossal debt burden of $32 trillion. The increasing deficit is likely to fuel the efforts of Republican lawmakers to reduce federal spending. Although the Grand Old Party, which holds the control of the House, recently reached an agreement with the Biden administration to temporarily suspend the debt ceiling, a fresh clash over spending for the upcoming fiscal year 2024, commencing on October 1, could be on the horizon. Factors contributing to the expansion of the budget deficit Rising interest rates have played a significant role, as the US Federal Reserve has increased its benchmark rate by 5 percentage points since initiating rate hikes in March of the previous year. Currently, five-year Treasury rates stand at approximately 3.96 per cent, a notable rise from 1.35 per cent at the start of the year. Consequently, as lower-yielding assets mature, the Treasury's interest rates on existing debt will steadily increase. A drop in tax revenue has also been a contributing factor, primarily due to a decline in capital gains tax collection. The decline in government revenue can be attributed to the decrease in stock, bond, and other asset prices observed in the previous year. Tax revenue between October and June was 11 percent lower compared to the same period a year ago. There has been a surge in government spending, with a significant jump of 10 percent. This surge can be attributed, in part, to the impact of inflation. The rise in inflation has necessitated higher expenditures across multiple categories of government spending. (With inputs from agencies)

$652 billion & counting: Soaring US debt costs reach 11-year high

A recent survey by the Federal Reserve shows the US economy is in bad shape. The Fed survey points to difficulties in getting loans as banks are tightening their lending standards.

US faces credit crunch amid bank turmoil

The US Federal Reserve raised its interest rates by a quarter of a percentage point for a 10th&nbsp;consecutive time on Wednesday (May 3), while indicating a pause in further increases. This comes amid recent bank failures as well as Congress’ ongoing deadlock over the debt ceiling issue.&nbsp;

The central bank has been aggressively raising interest rates since March last year in a bid to control the US’ soaring inflation and pushed its benchmark overnight interest rate somewhere in the 5.00 per cent and 5.25 per cent range. In the statement, the Fed also said that it would “take into account” the impact of tighter monetary policy and “economic and financial developments” going forward.

During the press conference, Fed Chair Jerome Powell said that the central bank still views inflation as too high and that it remains concerned by high price pressures. However, it no longer “anticipates” further hikes and monitors the incoming data to make the decision if more hikes “may be appropriate.”

Therefore, Powell has said that it is too soon to say if the rate-hike cycle is over as the decisions made by officials are taking on a “meeting-by-meeting” basis, adding, “we are prepared to do more&nbsp;with rate rises if needed.”&nbsp;

The decision about the recent hike came after the policy-setting Federal Open Market Committee’s (FOMC) recent meeting and was in line with the expectations of analysts and traders.&nbsp;

Notably, the recent statement by the central bank marks a departure from the last rate announcement where policymakers had said that they expect “additional policy firming” to rein in inflation. This time around, the Fed’s ease of guidance suggests that the economy is somewhat beginning to cool.&nbsp;

“If you add up all the tightening that's going on through various channels, we feel like we're getting close or are maybe even there,” said Powell, as quoted by Reuters, about monetary policy. The Fed chair also pushed back on market expectations of rate cuts this year adding, “We on the committee have a view that inflation is going to come down not so quickly, it will take some time.”&nbsp;

It is worth noting that the Fed’s policy rate, this time around, is somewhat close to where it was on the eve of the 2008 financial crisis. The rate hikes have more than doubled mortgage rates, elevated the costs of auto loans, credit card borrowing and business loans and heightened the risk of a recession, reported The Associated Press.&nbsp;

(With inputs from agencies)&nbsp; 
 
 
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The US Federal Reserve raised its interest rates by a quarter of a percentage point for a 10th consecutive time on Wednesday (May 3), while indicating a pause in further increases.

The US Federal Reserve raised its interest rates by a quarter of a percentage point for a 10th consecutive time on Wednesday (May 3), while indicating a pause in further increases. This comes amid recent bank failures as well as Congress’ ongoing deadlock over the debt ceiling issue. The central bank has been aggressively raising interest rates since March last year in a bid to control the US’ soaring inflation and pushed its benchmark overnight interest rate somewhere in the 5.00 per cent and 5.25 per cent range. In the statement, the Fed also said that it would “take into account” the impact of tighter monetary policy and “economic and financial developments” going forward. During the press conference, Fed Chair Jerome Powell said that the central bank still views inflation as too high and that it remains concerned by high price pressures. However, it no longer “anticipates” further hikes and monitors the incoming data to make the decision if more hikes “may be appropriate.” Therefore, Powell has said that it is too soon to say if the rate-hike cycle is over as the decisions made by officials are taking on a “meeting-by-meeting” basis, adding, “we are prepared to do more with rate rises if needed.” The decision about the recent hike came after the policy-setting Federal Open Market Committee’s (FOMC) recent meeting and was in line with the expectations of analysts and traders. Notably, the recent statement by the central bank marks a departure from the last rate announcement where policymakers had said that they expect “additional policy firming” to rein in inflation. This time around, the Fed’s ease of guidance suggests that the economy is somewhat beginning to cool. “If you add up all the tightening that's going on through various channels, we feel like we're getting close or are maybe even there,” said Powell, as quoted by Reuters, about monetary policy. The Fed chair also pushed back on market expectations of rate cuts this year adding, “We on the committee have a view that inflation is going to come down not so quickly, it will take some time.” It is worth noting that the Fed’s policy rate, this time around, is somewhat close to where it was on the eve of the 2008 financial crisis. The rate hikes have more than doubled mortgage rates, elevated the costs of auto loans, credit card borrowing and business loans and heightened the risk of a recession, reported The Associated Press. (With inputs from agencies) WATCH WION LIVE HERE You can now write for wionews.com and be a part of the community. Share your stories and opinions with us here.

US Federal Reserve announces quarter-point interest rate hike, signals potential pause

The Federal Reserve failed to “take forceful enough action” before the collapse of the Silicon Valley Bank last month, said the United States central bank, on Friday (April 28). However, it also criticised leadership at Silicon Valley Bank (SVB) for “a textbook case of mismanagement,” in its latest report.&nbsp;

The report also noted the extremely poor bank management, weakened regulations and lax government supervision for the failure of the collapse of the US lender. The collapse had&nbsp;also triggered an ongoing banking crisis for mid-sized US banks as the panic it set off also reportedly led to the failure of another major lender, Signature Bank, two days later.&nbsp;

Furthermore, the report also includes the release of internal reports and Fed communications which is rare and typically confidential but the Fed chose to release these reports to show how the bank was managed up to its failure.

Where did the Fed go wrong?

In its report, the Fed issued a detailed and scathing assessment of what led to the collapse of SVB, the US’ 16th largest bank. The report was authored by Vice Chair for Supervision Michael Barr and staff said, “Federal Reserve supervisors failed to take forceful enough action.”&nbsp;

It added, “SVB’s failure demonstrates that there are weaknesses in regulation and supervision that must be addressed.” The report also highlighted the underlying cultural issues at the Fed, where supervisors were unwilling to take strict action on bank management when they saw growing problems.

“Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity,” said Barr. He added, “When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough.”&nbsp;

The Fed&nbsp;also concluded, on the note, that these cultural issues stemmed from legislation passed in 2018, which lessened regulations for banks with less than $250 billion in assets. A year later, the Fed also weakened its own rules and exempted banks below that threshold from stress tests and other regulations.&nbsp;

SVB’s role

The report also noted that the Fed “did not appreciate the seriousness of critical deficiencies” in SVB’s governance, liquidity, and interest rate risk management, adding, this meant that while the conditions deteriorated and significant risk to the firm’s safety and soundness emerged the bank remained “well-rated.”

Meanwhile, Fed also criticised the bank for how they managed executive compensation, as the report indicates that the executive compensation at the bank was geared toward short-term profits and the stock price with no incentives tied to risk management.

It is also worth noting that the Silicon Valley Bank did not have a chief risk officer at the firm for roughly a year and it was also the time when the firm was rapidly growing. In 2022, SVB did not test its capacity to borrow at the discount window or have appropriate collateral and operational arrangements in place to obtain contingency funding.

What does the Fed plan to do now?

The central bank now plans to reexamine how it regulates larger regional banks like SVB, which had $200 billion in assets when it collapsed. “While higher supervisory and regulatory requirements may not have prevented the firm’s failure, they would likely have bolstered the resilience of Silicon Valley Bank,” the report noted.&nbsp;

Meanwhile, banking policy analysts said that this report, along with the two separate ones released by Federal Deposit Insurance Corp&nbsp;and the Government Accountability Office might lead to tighter regulations. Although the Fed acknowledged it could take years for proposals to be implemented.&nbsp;

(With inputs from agencies) 
 
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The Federal Reserve failed to “take forceful enough action” before the collapse of the Silicon Valley Bank last month, said the United States central bank, on Friday (April 28).

The Federal Reserve failed to “take forceful enough action” before the collapse of the Silicon Valley Bank last month, said the United States central bank, on Friday (April 28). However, it also criticised leadership at Silicon Valley Bank (SVB) for “a textbook case of mismanagement,” in its latest report. The report also noted the extremely poor bank management, weakened regulations and lax government supervision for the failure of the collapse of the US lender. The collapse had also triggered an ongoing banking crisis for mid-sized US banks as the panic it set off also reportedly led to the failure of another major lender, Signature Bank, two days later. Furthermore, the report also includes the release of internal reports and Fed communications which is rare and typically confidential but the Fed chose to release these reports to show how the bank was managed up to its failure. Where did the Fed go wrong? In its report, the Fed issued a detailed and scathing assessment of what led to the collapse of SVB, the US’ 16th largest bank. The report was authored by Vice Chair for Supervision Michael Barr and staff said, “Federal Reserve supervisors failed to take forceful enough action.” It added, “SVB’s failure demonstrates that there are weaknesses in regulation and supervision that must be addressed.” The report also highlighted the underlying cultural issues at the Fed, where supervisors were unwilling to take strict action on bank management when they saw growing problems. “Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity,” said Barr. He added, “When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough.” The Fed also concluded, on the note, that these cultural issues stemmed from legislation passed in 2018, which lessened regulations for banks with less than $250 billion in assets. A year later, the Fed also weakened its own rules and exempted banks below that threshold from stress tests and other regulations. SVB’s role The report also noted that the Fed “did not appreciate the seriousness of critical deficiencies” in SVB’s governance, liquidity, and interest rate risk management, adding, this meant that while the conditions deteriorated and significant risk to the firm’s safety and soundness emerged the bank remained “well-rated.” Meanwhile, Fed also criticised the bank for how they managed executive compensation, as the report indicates that the executive compensation at the bank was geared toward short-term profits and the stock price with no incentives tied to risk management. It is also worth noting that the Silicon Valley Bank did not have a chief risk officer at the firm for roughly a year and it was also the time when the firm was rapidly growing. In 2022, SVB did not test its capacity to borrow at the discount window or have appropriate collateral and operational arrangements in place to obtain contingency funding. What does the Fed plan to do now? The central bank now plans to reexamine how it regulates larger regional banks like SVB, which had $200 billion in assets when it collapsed. “While higher supervisory and regulatory requirements may not have prevented the firm’s failure, they would likely have bolstered the resilience of Silicon Valley Bank,” the report noted. Meanwhile, banking policy analysts said that this report, along with the two separate ones released by Federal Deposit Insurance Corp and the Government Accountability Office might lead to tighter regulations. Although the Fed acknowledged it could take years for proposals to be implemented. (With inputs from agencies) WATCH WION LIVE HERE You can now write for wionews.com and be a part of the community. Share your stories and opinions with us here.

Federal Reserve admits fault, blames Silicon Valley Bank executives for collapse, calls for stricter rules

Several large banks, including JPMorgan Chase &amp; Co. and PNC Financial Services Group Inc., are reportedly interested to bid for purchasing First Republic Bank. According to reports, US banking regulator Federal Deposit Insurance Corp. (FDIC) could seize and sell First Republic bank this weekend.

FDIC is an independent agency created by the US&nbsp;Congress to maintain stability and public confidence in the nation’s financial system.&nbsp;

The announcement comes as the FDIC is getting ready to immediately put First Republic into receivership after determining there is no longer time to attempt a private sector rescue of the ailing regional lender.

The San Francisco-based lender would be the third American bank to fail since March if it enters receivership, after the failure of Silicon Valley Bank and Signature Bank. First Republic clients panicked and withdrew almost $100 billion in deposits in a few days of the SVB catastrophe.

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Since then, the stock has lost around 97% of its value. The largest banks in the country, including JPMorgan and PNC, attempted to support the First Republic bank with a $30 billion deposit, but it was insufficient.

According to The Wall Street Journal, First Republic contemplated a sale or an outside capital infusion and recruited investment bankers to advise on its alternatives.

Also Read |&nbsp;<a href="https://www.wionews.com/india-news/indian-air-force-uses-night-vision-goggles-bravely-rescues-121-people-from-sudan-airstrip-587183">Indian Air Force uses night vision goggles, bravely rescues 121 people from Sudan airstrip</a>

Additionally, a proposal to sell some of its loans, securities, or both at a premium to market value was floated. It would be the second-largest bank to collapse in the United States history, with $233 billion in assets at the end of the first quarter.

On Monday, First Republic presented a dreadful quarterly profits report that included fresh information on the severity of the harm caused by the deposit run.

The bank claimed that costly loans from the Federal Reserve and Federal Home Loan Bank were used to plug the hole left by fleeing depositors. That left the lender facing a future scenario in which it might have to pay more in liabilities than it would have made in assets.

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The bank's stocks dropped roughly 50% in one day. It fell further during the week, closing at $3.51 a share on Friday, down from $115 on March 8 when SVB announced its&nbsp;losses that alarmed investors.

Customers with balances above the $250,000 deposit insurance limit started to withdraw their money in large quantities in March out of fear for the stability of a few smaller banks, which set off turbulence in the banking industry.

A few days following SVB's demise, the New York-based Signature Bank went down.

Regulators and bankers anticipated that once the government intervened to compensate uninsured depositors at SVB and Signature, the panic had subsided. However, First Republic had few viable options due to its severely damaged balance sheet.

The assets and deposits of First Republic might be easily absorbed by a small number of banks. Some of them, such as Wells Fargo &amp; Co., encounter regulatory barriers to growth. Others are still processing recent bank agreements.

Both JPMorgan and the Pittsburgh-based PNC have a history of stepping up in times of need.

In 2008, JPMorgan acquired the failing Bear Stearns, and after the government seized it, it took over the activities of Washington Mutual Inc.

Jamie Dimon, the CEO, used his expertise in crisis management to establish himself as a statesman among bank executives. He frequently utilises his position to advise government leaders and advocate for policy changes he believes would boost the economy.

With support from the government, PNC acquired the struggling Cleveland-based lender National City Corp. during the financial crisis of 2008. According to the Federal Reserve, it was the sixth-largest bank in the country at the end of last year.&nbsp;

 
 
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Several large banks, including JPMorgan Chase & Co. and PNC Financial Services Group Inc., are reportedly interested to bid for purchasing First Republic Bank. According to reports, US banking regulator Federal Deposit Insurance Corp.

Several large banks, including JPMorgan Chase & Co. and PNC Financial Services Group Inc., are reportedly interested to bid for purchasing First Republic Bank. According to reports, US banking regulator Federal Deposit Insurance Corp. (FDIC) could seize and sell First Republic bank this weekend. FDIC is an independent agency created by the US Congress to maintain stability and public confidence in the nation’s financial system. The announcement comes as the FDIC is getting ready to immediately put First Republic into receivership after determining there is no longer time to attempt a private sector rescue of the ailing regional lender. The San Francisco-based lender would be the third American bank to fail since March if it enters receivership, after the failure of Silicon Valley Bank and Signature Bank. First Republic clients panicked and withdrew almost $100 billion in deposits in a few days of the SVB catastrophe. Also Read | EU nations reach deal 'in principle' to transit grain from Ukraine Since then, the stock has lost around 97% of its value. The largest banks in the country, including JPMorgan and PNC, attempted to support the First Republic bank with a $30 billion deposit, but it was insufficient. According to The Wall Street Journal, First Republic contemplated a sale or an outside capital infusion and recruited investment bankers to advise on its alternatives. Also Read | Indian Air Force uses night vision goggles, bravely rescues 121 people from Sudan airstrip Additionally, a proposal to sell some of its loans, securities, or both at a premium to market value was floated. It would be the second-largest bank to collapse in the United States history, with $233 billion in assets at the end of the first quarter. On Monday, First Republic presented a dreadful quarterly profits report that included fresh information on the severity of the harm caused by the deposit run. The bank claimed that costly loans from the Federal Reserve and Federal Home Loan Bank were used to plug the hole left by fleeing depositors. That left the lender facing a future scenario in which it might have to pay more in liabilities than it would have made in assets. Watch | After Russia's winter assault, Ukraine prepares for summer attack × The bank's stocks dropped roughly 50% in one day. It fell further during the week, closing at $3.51 a share on Friday, down from $115 on March 8 when SVB announced its losses that alarmed investors. Customers with balances above the $250,000 deposit insurance limit started to withdraw their money in large quantities in March out of fear for the stability of a few smaller banks, which set off turbulence in the banking industry. A few days following SVB's demise, the New York-based Signature Bank went down. Regulators and bankers anticipated that once the government intervened to compensate uninsured depositors at SVB and Signature, the panic had subsided. However, First Republic had few viable options due to its severely damaged balance sheet. The assets and deposits of First Republic might be easily absorbed by a small number of banks. Some of them, such as Wells Fargo & Co., encounter regulatory barriers to growth. Others are still processing recent bank agreements. Both JPMorgan and the Pittsburgh-based PNC have a history of stepping up in times of need. In 2008, JPMorgan acquired the failing Bear Stearns, and after the government seized it, it took over the activities of Washington Mutual Inc. Jamie Dimon, the CEO, used his expertise in crisis management to establish himself as a statesman among bank executives. He frequently utilises his position to advise government leaders and advocate for policy changes he believes would boost the economy. With support from the government, PNC acquired the struggling Cleveland-based lender National City Corp. during the financial crisis of 2008. According to the Federal Reserve, it was the sixth-largest bank in the country at the end of last year. WATCH WION LIVE HERE You can now write for wionews.com and be a part of the community. Share your stories and opinions with us here.

JPMorgan Chase, PNC bid for distressed First Republic as part of FDIC takeover

The Federal Reserve has lent US banks nearly $12 billion under a new one-year lending programme unveiled last Sunday (March 12), as authorities moved to ease stress on the financial system after Silicon Valley Bank's collapse.

The total outstanding amount of all advances under the Bank Term Funding Programme reached $11.9 billion by Wednesday, the US central bank announced in a statement on Thursday.

The Fed had unveiled the scheme alongside the Treasury and the Federal Deposit Insurance Corporation on Sunday (March 12) night, as authorities looked to prevent other banks from running into the liquidity issues that ultimately doomed California's SVB.

The new liquidity facility made additional funding available "to help assure banks have the ability to meet the needs of all their depositors," the statement read.

According to data made available on Thursday (March 16), the Fed drew an additional $152 billion in short-term borrowing for banks from its standing loan window, the traditional liquidity backstop for lenders, a dramatic increase against the roughly $5 billion from the previous week.

And with the seizure of failed SVB and Signature Bank, a second regional-size lender that collapsed at the weekend, an additional $142.8 billion was poured into the bridge banks created by regulators for the two collapsed entities, pushing the Fed's balance sheet up by about $300 billion in the past week.&nbsp;

US authorities moved swiftly to protect depositors at SVB and Signature Bank as they saw "serious risk of contagion" that could have triggered runs on many banks, Treasury Secretary Janet Yellen told senators in Congress on Thursday.

In the days since SVB's failure, a number of regional lenders led by First Republic Bank have seen their share prices plummet on concerns about their long-term financial health.

But markets responded positively after consortium of 11 of America's biggest banks, including Bank of America, Goldman Sachs and JPMorgan Chase,&nbsp;announced Thursday that they were depositing $30 billion into First Republic.

The group said in a statement that their actions reflect "confidence in the country's banking system." 
 
(With inputs from agencies)

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The Federal Reserve has lent US banks nearly $12 billion under a new one-year lending programme unveiled last Sunday (March 12), as authorities moved to ease stress on the financial system after Silicon Valley Bank's collapse.

The Federal Reserve has lent US banks nearly $12 billion under a new one-year lending programme unveiled last Sunday (March 12), as authorities moved to ease stress on the financial system after Silicon Valley Bank's collapse. The total outstanding amount of all advances under the Bank Term Funding Programme reached $11.9 billion by Wednesday, the US central bank announced in a statement on Thursday. The Fed had unveiled the scheme alongside the Treasury and the Federal Deposit Insurance Corporation on Sunday (March 12) night, as authorities looked to prevent other banks from running into the liquidity issues that ultimately doomed California's SVB. The new liquidity facility made additional funding available "to help assure banks have the ability to meet the needs of all their depositors," the statement read. According to data made available on Thursday (March 16), the Fed drew an additional $152 billion in short-term borrowing for banks from its standing loan window, the traditional liquidity backstop for lenders, a dramatic increase against the roughly $5 billion from the previous week. And with the seizure of failed SVB and Signature Bank, a second regional-size lender that collapsed at the weekend, an additional $142.8 billion was poured into the bridge banks created by regulators for the two collapsed entities, pushing the Fed's balance sheet up by about $300 billion in the past week. US authorities moved swiftly to protect depositors at SVB and Signature Bank as they saw "serious risk of contagion" that could have triggered runs on many banks, Treasury Secretary Janet Yellen told senators in Congress on Thursday. In the days since SVB's failure, a number of regional lenders led by First Republic Bank have seen their share prices plummet on concerns about their long-term financial health. But markets responded positively after consortium of 11 of America's biggest banks, including Bank of America, Goldman Sachs and JPMorgan Chase, announced Thursday that they were depositing $30 billion into First Republic. The group said in a statement that their actions reflect "confidence in the country's banking system." (With inputs from agencies) You can now write for wionews.com and be a part of the community. Share your stories and opinions with us here. WATCH WION LIVE HERE ×

Federal Reserve lent US banks nearly $12 billion for a year to ease stress after SVB collapse

The U.S. Federal Reserve reinforced its inflation fight Wednesday by raising its key interest rate for the seventh time this year and signalling more hikes to come.

U.S. Federal Reserve raises interest rate for 7th time this years

The United States Federal Reserve following its last meeting of the year on Wednesday announced another interest rate hike, this time by half a percentage point making this its seventh time this year. Furthermore, the officials have also said that the central bank will deliver more interest rate hikes in 2023, in a bid to tame decade-high inflation in the country.&nbsp;

The interest rate, which is now at its highest in the last 15 years, seems to be reducing inflation to some degree as the US CPI data shows that the annual inflation has slowed down from 7.7 per cent in October to 7.1 per cent in November. However, Federal Reserve Chair Jerome Powell said that the recent slowing down has not been reassuring that the fight has been won.

Why is the Fed raising the interest rates?

When an economy is booming and inflation is on the rise, an increase in the interest rates slows everything down by making borrowing more expensive and&nbsp;discouraging consumers and businesses to spend more. This decrease in spending typically slows the economy and cools down inflation.&nbsp;

These hikes are also in line with the central bank’s goal to push inflation down to two per cent. So far, the Feds have been aggressively raising the interest rate as the country continues to battle high inflation, this time around, the&nbsp;benchmark was raised&nbsp;by half a point as opposed to the string of four straight three-quarter point hikes&nbsp;in the past couple of months.&nbsp;

ALSO READ |&nbsp;<a href="https://www.wionews.com/business-economy/us-federal-reserve-raises-interest-rate-by-075-again-in-a-bid-to-combat-inflation-530687">In a historic move, US Federal Reserve raises interest rate by 0.75% again</a>

Furthermore, the interest rate hike announced on Wednesday also marked the highest fed funds rate since December 2007 during the onset of the global financial crisis of 2008. However, this trend may continue for the upcoming year as it is projected that the rates would rise above five per cent by the end of next year, which is now somewhere between the 4.25 per cent to 4.5 per cent range.&nbsp;

What does it mean for American consumers?

The federal funds rate, set by the central bank, is the interest rate at which the commercial banks borrow and lend from one another overnight. Consequently, it directly or indirectly affects the borrowing costs for consumers and their earnings on savings accounts.&nbsp;

ALSO READ |&nbsp;<a href="https://www.wionews.com/business-economy/fed-lifts-benchmark-rate-by-half-percentage-point-543120">Fed lifts benchmark rate by half percentage point</a>

As of now, this leads many Americans to lean on credit as they are affected at a time when they are facing higher prices due to inflation as well as an unprecedented rise in interest rates which has not been witnessed in the past decade or so.

Notably, the Fed does not control all interest rates; rather it's a ripple effect, which begins with the central bank raising the interest rates and others following suit. Some of these interest rates affected include mortgages, credit cards, and other loans.&nbsp;

Chief financial analyst at Bankrate, Greg McBride, said, “Credit card rates are at a record high and still increasing. Auto loan rates are at an 11-year high. Home equity lines of credit are at a 15-year high. And online savings account and CD yields haven’t been this high since 2008.”&nbsp;

The New York-based consumer financial services firm, Bankrate also noted that the average credit card rate hit a record high of 19.40 per cent (as of December 7) which is up from 16.3 per cent since the beginning of the year. Consequently, with the recent hike consumers can also witness an increase in their credit card rates within a few statements.&nbsp;

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Therefore, McBride suggests transferring any balances on the credit cards to a zero-rate balance transfer card which locks in a zero rate between a year and 21 months, this would “insulate you from rate hikes” giving the consumer a “clear runway” to pay off their debt. He added, “Less debt and more savings will enable you to better weather rising interest rates, and is especially valuable if the economy sours.”

As for mortgages, the recent Fed hike would affect millions. Freddie Mac, an enterprise promoting home lending, said that with every percentage point increase in mortgage rates, which is eventually affected by the increase in the central bank’s benchmark rate, households which can afford a $400,000 mortgage decline by three to four million.&nbsp;

Furthermore, according to the federally funded company, the 30-year fixed-rate mortgage average was 6.33 per cent by the end of the second week of December which is more than double the same time last year, for the first time in US history. This comes as mortgage rates have been rising over the past year or so which has also affected at least 15 million potential homebuyers.&nbsp;

ALSO READ |&nbsp;<a href="https://www.wionews.com/business-economy/us-securities-regulator-issue-new-guidelines-on-disclosing-cryptocurrency-risks-541559">US securities regulator issues new guidelines for firms, makes cryptocurrency risk disclosure must</a>

The 30-year average at one point had peaked above seven per cent, however, the decrease is not enough to help buyer affordability, said McBride. Furthermore, with mortgage rates rising faster than home prices dropping, Americans will be forced to spend more which could add to the financial stress of high inflation, said a report by NBC. Therefore, with more hikes in the Fed interest rate on the horizon, mortgage rates may climb further.&nbsp;

How has the market reacted to the latest hike?

Interest rate hikes typically create volatility in the stock market and this time was no different. Following the announcement, the Dow Jones Industrial Average fell 142.29 points or 0.42 per cent, while S&amp;P 500 lost 24.33 points or 0.61 per cent and the Nasdaq Composite dropped 85.93 points, or 0.76 per cent, reported Reuters.&nbsp;

Notably, three major averages on Wall Street might witness a yearly decline for the first time since 2018 as well as their biggest annual percentage decline since the financial crisis of 2008. This comes as nearly all 11 major S&amp;P 500 sectors ended in negatives on Wednesday with healthcare being an exception, while financials were down 1.29 per cent making it the worst performing sector.&nbsp;

ALSO READ |&nbsp;<a href="https://www.wionews.com/business-economy/dollar-gains-broadly-as-upbeat-us-data-muddles-fed-rate-hike-views-540382">Dollar gains broadly as upbeat US data muddles Fed rate hike views</a> 
 
Meanwhile, the condition of Asian stocks was no better, on Thursday, following the announcement and declines on Wall Street, Japan’s Nikkei dropped 0.42 per cent, while Australia’s S&amp;P/ASX 200 fell 0.62 per cent, Hong Kong’s Hang Seng witnessed a decline of 1.13 per cent and South Korea’s Kospi tumbled 1.32 per cent.&nbsp;

The decline has also been attributed to a rise in COVID-19 cases in China and crude oil’s downturn after strong gains a day prior. Additionally, while Beijing moves to open its economy after lifting its stringent zero-Covid restrictions, the slowed factory output and fewer retail sales in November continued to affect its outlook.&nbsp;

What has the Fed forecasted for the upcoming year?

On Wednesday, following the announcement of the interest rate hike, Powell also said that more interest rate hikes are on the horizon for the upcoming year while the US economy is in the midst of possibly slipping into recession. The Fed officials also projected a rise in the unemployment rate from the current 3.6 per cent to 4.6 per cent for the upcoming year. &nbsp;

ALSO READ |&nbsp;<a href="https://www.wionews.com/business-economy/poll-shows-that-the-us-economy-is-headed-for-a-shallow-recession-heres-what-it-means-541596">Poll shows that the US economy is headed for a shallow recession: Here’s what it means</a>

Currently, the rate of unemployment is increasing by 0.5 per cent annually and by the end of 2023, it would be well beyond what has historically been associated with recession. However, Powell has said that they don’t “talk about this kind of recession, that kind of a recession. We just make these forecasts.”

During the press conference, following the meeting of the Federal Reserve’s Federal Open Market Committee (FOMC), he also said that there is no “completely painless way to restore price stability” and they are doing the best they can. However, even with the recent aggressive hikes, inflation remains at least three times higher than their target and they speculate it will take at least three years for things to fall back.&nbsp;

ALSO WATCH |&nbsp;<a href="https://www.wionews.com/videos/fitch-inflation-and-fed-hikes-to-drive-us-economy-into-recession-526566">Fitch: Inflation and fed hikes to drive US economy into recession</a>

“The inflation data received so far in October and November show a welcome reduction in the pace of price increases, but it will take substantially more evidence to give confidence inflation is on a sustained downward path,” said Powell.&nbsp; 
 
(With inputs from agencies)&nbsp; 
 
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The United States Federal Reserve following its last meeting of the year on Wednesday announced another interest rate hike, this time by half a percentage point making this its seventh time this year.

The United States Federal Reserve following its last meeting of the year on Wednesday announced another interest rate hike, this time by half a percentage point making this its seventh time this year. Furthermore, the officials have also said that the central bank will deliver more interest rate hikes in 2023, in a bid to tame decade-high inflation in the country. The interest rate, which is now at its highest in the last 15 years, seems to be reducing inflation to some degree as the US CPI data shows that the annual inflation has slowed down from 7.7 per cent in October to 7.1 per cent in November. However, Federal Reserve Chair Jerome Powell said that the recent slowing down has not been reassuring that the fight has been won. Why is the Fed raising the interest rates? When an economy is booming and inflation is on the rise, an increase in the interest rates slows everything down by making borrowing more expensive and discouraging consumers and businesses to spend more. This decrease in spending typically slows the economy and cools down inflation. These hikes are also in line with the central bank’s goal to push inflation down to two per cent. So far, the Feds have been aggressively raising the interest rate as the country continues to battle high inflation, this time around, the benchmark was raised by half a point as opposed to the string of four straight three-quarter point hikes in the past couple of months. ALSO READ | In a historic move, US Federal Reserve raises interest rate by 0.75% again Furthermore, the interest rate hike announced on Wednesday also marked the highest fed funds rate since December 2007 during the onset of the global financial crisis of 2008. However, this trend may continue for the upcoming year as it is projected that the rates would rise above five per cent by the end of next year, which is now somewhere between the 4.25 per cent to 4.5 per cent range. What does it mean for American consumers? The federal funds rate, set by the central bank, is the interest rate at which the commercial banks borrow and lend from one another overnight. Consequently, it directly or indirectly affects the borrowing costs for consumers and their earnings on savings accounts. ALSO READ | Fed lifts benchmark rate by half percentage point As of now, this leads many Americans to lean on credit as they are affected at a time when they are facing higher prices due to inflation as well as an unprecedented rise in interest rates which has not been witnessed in the past decade or so. Notably, the Fed does not control all interest rates; rather it's a ripple effect, which begins with the central bank raising the interest rates and others following suit. Some of these interest rates affected include mortgages, credit cards, and other loans. Chief financial analyst at Bankrate, Greg McBride, said, “Credit card rates are at a record high and still increasing. Auto loan rates are at an 11-year high. Home equity lines of credit are at a 15-year high. And online savings account and CD yields haven’t been this high since 2008.” The New York-based consumer financial services firm, Bankrate also noted that the average credit card rate hit a record high of 19.40 per cent (as of December 7) which is up from 16.3 per cent since the beginning of the year. Consequently, with the recent hike consumers can also witness an increase in their credit card rates within a few statements. ALSO WATCH | World Business Watch: U.S. announces 7th interest rate hike of 2022 Therefore, McBride suggests transferring any balances on the credit cards to a zero-rate balance transfer card which locks in a zero rate between a year and 21 months, this would “insulate you from rate hikes” giving the consumer a “clear runway” to pay off their debt. He added, “Less debt and more savings will enable you to better weather rising interest rates, and is especially valuable if the economy sours.” As for mortgages, the recent Fed hike would affect millions. Freddie Mac, an enterprise promoting home lending, said that with every percentage point increase in mortgage rates, which is eventually affected by the increase in the central bank’s benchmark rate, households which can afford a $400,000 mortgage decline by three to four million. Furthermore, according to the federally funded company, the 30-year fixed-rate mortgage average was 6.33 per cent by the end of the second week of December which is more than double the same time last year, for the first time in US history. This comes as mortgage rates have been rising over the past year or so which has also affected at least 15 million potential homebuyers. ALSO READ | US securities regulator issues new guidelines for firms, makes cryptocurrency risk disclosure must The 30-year average at one point had peaked above seven per cent, however, the decrease is not enough to help buyer affordability, said McBride. Furthermore, with mortgage rates rising faster than home prices dropping, Americans will be forced to spend more which could add to the financial stress of high inflation, said a report by NBC. Therefore, with more hikes in the Fed interest rate on the horizon, mortgage rates may climb further. How has the market reacted to the latest hike? Interest rate hikes typically create volatility in the stock market and this time was no different. Following the announcement, the Dow Jones Industrial Average fell 142.29 points or 0.42 per cent, while S&P 500 lost 24.33 points or 0.61 per cent and the Nasdaq Composite dropped 85.93 points, or 0.76 per cent, reported Reuters. Notably, three major averages on Wall Street might witness a yearly decline for the first time since 2018 as well as their biggest annual percentage decline since the financial crisis of 2008. This comes as nearly all 11 major S&P 500 sectors ended in negatives on Wednesday with healthcare being an exception, while financials were down 1.29 per cent making it the worst performing sector. ALSO READ | Dollar gains broadly as upbeat US data muddles Fed rate hike views Meanwhile, the condition of Asian stocks was no better, on Thursday, following the announcement and declines on Wall Street, Japan’s Nikkei dropped 0.42 per cent, while Australia’s S&P/ASX 200 fell 0.62 per cent, Hong Kong’s Hang Seng witnessed a decline of 1.13 per cent and South Korea’s Kospi tumbled 1.32 per cent. The decline has also been attributed to a rise in COVID-19 cases in China and crude oil’s downturn after strong gains a day prior. Additionally, while Beijing moves to open its economy after lifting its stringent zero-Covid restrictions, the slowed factory output and fewer retail sales in November continued to affect its outlook. What has the Fed forecasted for the upcoming year? On Wednesday, following the announcement of the interest rate hike, Powell also said that more interest rate hikes are on the horizon for the upcoming year while the US economy is in the midst of possibly slipping into recession. The Fed officials also projected a rise in the unemployment rate from the current 3.6 per cent to 4.6 per cent for the upcoming year. ALSO READ | Poll shows that the US economy is headed for a shallow recession: Here’s what it means Currently, the rate of unemployment is increasing by 0.5 per cent annually and by the end of 2023, it would be well beyond what has historically been associated with recession. However, Powell has said that they don’t “talk about this kind of recession, that kind of a recession. We just make these forecasts.” During the press conference, following the meeting of the Federal Reserve’s Federal Open Market Committee (FOMC), he also said that there is no “completely painless way to restore price stability” and they are doing the best they can. However, even with the recent aggressive hikes, inflation remains at least three times higher than their target and they speculate it will take at least three years for things to fall back. ALSO WATCH | Fitch: Inflation and fed hikes to drive US economy into recession “The inflation data received so far in October and November show a welcome reduction in the pace of price increases, but it will take substantially more evidence to give confidence inflation is on a sustained downward path,” said Powell. (With inputs from agencies) WATCH WION LIVE HERE

US Federal Reserve raises interest rate for 7th time this year: Here’s what it means

A new poll by Reuters shows that a large majority of economists said that the United States economy is headed for a short and shallow recession sometime in the coming year. This comes as the country is witnessing soaring inflation, which was at a four-decade high, prompting the Federal Reserve to announce several interest rate hikes since the beginning of this year in a bid to combat it.

What is a recession and a shallow recession?

A recession can occur in varying degrees and leave a significant impact on the economy; typically when an economy faces two consecutive quarters of negative gross domestic product (GDP), it could be said that a country is witnessing a recession. However, there are various additional formulas and complexities surrounding the discussion.&nbsp;

ALSO READ |&nbsp;<a href="https://www.wionews.com/world/fueling-recession-fears-the-us-economy-shrank-again-in-second-quarter-501488">Fueling recession fears, the US economy shrank again in second quarter</a>

For example, in the context of the US economy, the <a href="https://www.wionews.com/world/pandemic-effect-us-economy-set-to-outpace-china-first-time-since-1976-481005">COVID-19-induced recession</a> only lasted for two months, which is one of the shortest cycles on record, after the economic activity plunged in April 2020. Furthermore, the official call that an economy is witnessing a recession is taken by a panel of economists convened by the National Bureau of Economic Research (NBER).

Among other indicators, the NBER accounts for non-farm payrolls, retail sales and industrial production, however, the private non-profit research group also said that there are “no fixed rules” about measures and indicators that contribute information to the process or how they are weighted in their decisions.&nbsp;

ALSO READ |&nbsp;<a href="https://www.wionews.com/world/jeff-bezos-sounds-warning-bell-on-us-economy-as-he-asks-people-to-avoid-going-on-spending-spree-535758">Jeff Bezos sounds warning on US economy, urges people to avoid going on spending spree</a>

The group's definition of a recession is a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” It also believes that the depth, diffusion and duration of this downturn need to be met individually. Additionally, “extreme conditionals revealed by one criterion may partially offset weaker indications from another,” said the NBER.&nbsp;

Notably, the official call indicating that an economy is witnessing a recession is made at least a year or more after the downturn event has already occurred. Therefore, another approach, more focused on determining the onset of a recession, is the employment-based Sahm rule which says that when the three-month rolling average of the unemployment rate rises half a point from its low, an economy has entered a recession.&nbsp;

ALSO WATCH |&nbsp;<a href="https://www.wionews.com/videos/fitch-inflation-and-fed-hikes-to-drive-us-economy-into-recession-526566">Fitch: Inflation and fed hikes to drive US economy into recession</a>

The rule was created by and named after a former Fed economist Claudia Sahm&nbsp;and used to determine the onset of a recession, which is quicker than official calls. In contrast to the aforementioned example of the COVID-19-induced recession, some other recessions can be deeper and scarring for the economy like the Great Recession or the Depression whose impact was so adverse that it reportedly took a decade or more to revive the labour market.&nbsp;

The speculations of the US economy entering a <a href="https://www.wionews.com/business-economy/us-recession-not-inevitable-economy-on-right-track-yellen-541427">“shallow recession”</a> have been around for quite a few months now, it is where the economic growth contracts only marginally and for a limited time. This comes after consecutive increases in interest rates by the Feds amounting to an overall hike of 375 basis points, since its first one in March, earlier this year which has sparked worries about an impending recession.&nbsp;

Reuters poll: Most economists expect a shallow and short recession

Reuters polled 84 economists between December 2 and 8 who unanimously expect the Feds to raise the interest rate by 50 basis points on December 14&nbsp;as the rate of inflation is running well above the central bank's two per cent target. However, after raising the interest rates by 75 basis points for the <a href="https://www.wionews.com/business-economy/us-federal-reserve-raises-interest-rate-by-075-again-in-a-bid-to-combat-inflation-530687">fourth consecutive time</a>, the economists believe that it will be a “slightly softer” hike of 4.25 per cent to 4.50 per cent this time around.&nbsp;

ALSO READ |&nbsp;<a href="https://www.wionews.com/business-economy/dollar-gains-broadly-as-upbeat-us-data-muddles-fed-rate-hike-views-540382">Dollar gains broadly as upbeat US data muddles Fed rate hike views</a>

Economists who as a group can be slower with their forecast of recessions, as mentioned earlier, have also said that the probability of a recession in the upcoming year or two is at least 70 per cent which is up seven per cent from the last poll, said the report. Furthermore, 35 out of 48 economists said that the recession would be shallow and short, while eight economists said it would be long and shallow and four said there won’t be any recession.&nbsp;

Inflation is expected to stay over the Fed’s target until at least 2026, said the report, and while the<a href="https://www.wionews.com/economy/us-hiring-remains-robust-in-november-adds-263000-new-jobs-despite-soaring-inflation-539572"> labour market remains strong</a>, the bigger risk was that the rates would peak higher and later than expected. While some economists are expecting the fed funds rate to peak early next year at 4.75 per cent to five per cent, at least 24 of the 72 said that they believe it will go higher.&nbsp;

ALSO WATCH |&nbsp;<a href="https://www.wionews.com/videos/us-economy-heading-into-a-shadow-recession-poll-541472">US economy heading into a shallow recession: Poll</a>

This comes amid signs of a slowing economy, particularly the housing market which was the epicentre of the 2008 recession in the US. Reportedly, home sales have decreased for nine months straight. Additionally, 27 of 45 economists who provided quarterly (GDP) forecasts estimate a contraction in economic growth for two consecutive quarters or more in the coming year.&nbsp;

(With inputs from agencies)&nbsp;

A new poll by Reuters shows that a large majority of economists said that the United States economy is headed for a short and shallow recession sometime in the coming year.

A new poll by Reuters shows that a large majority of economists said that the United States economy is headed for a short and shallow recession sometime in the coming year. This comes as the country is witnessing soaring inflation, which was at a four-decade high, prompting the Federal Reserve to announce several interest rate hikes since the beginning of this year in a bid to combat it. What is a recession and a shallow recession? A recession can occur in varying degrees and leave a significant impact on the economy; typically when an economy faces two consecutive quarters of negative gross domestic product (GDP), it could be said that a country is witnessing a recession. However, there are various additional formulas and complexities surrounding the discussion. ALSO READ | Fueling recession fears, the US economy shrank again in second quarter For example, in the context of the US economy, the COVID-19-induced recession only lasted for two months, which is one of the shortest cycles on record, after the economic activity plunged in April 2020. Furthermore, the official call that an economy is witnessing a recession is taken by a panel of economists convened by the National Bureau of Economic Research (NBER). Among other indicators, the NBER accounts for non-farm payrolls, retail sales and industrial production, however, the private non-profit research group also said that there are “no fixed rules” about measures and indicators that contribute information to the process or how they are weighted in their decisions. ALSO READ | Jeff Bezos sounds warning on US economy, urges people to avoid going on spending spree The group's definition of a recession is a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” It also believes that the depth, diffusion and duration of this downturn need to be met individually. Additionally, “extreme conditionals revealed by one criterion may partially offset weaker indications from another,” said the NBER. Notably, the official call indicating that an economy is witnessing a recession is made at least a year or more after the downturn event has already occurred. Therefore, another approach, more focused on determining the onset of a recession, is the employment-based Sahm rule which says that when the three-month rolling average of the unemployment rate rises half a point from its low, an economy has entered a recession. ALSO WATCH | Fitch: Inflation and fed hikes to drive US economy into recession The rule was created by and named after a former Fed economist Claudia Sahm and used to determine the onset of a recession, which is quicker than official calls. In contrast to the aforementioned example of the COVID-19-induced recession, some other recessions can be deeper and scarring for the economy like the Great Recession or the Depression whose impact was so adverse that it reportedly took a decade or more to revive the labour market. The speculations of the US economy entering a “shallow recession” have been around for quite a few months now, it is where the economic growth contracts only marginally and for a limited time. This comes after consecutive increases in interest rates by the Feds amounting to an overall hike of 375 basis points, since its first one in March, earlier this year which has sparked worries about an impending recession. Reuters poll: Most economists expect a shallow and short recession Reuters polled 84 economists between December 2 and 8 who unanimously expect the Feds to raise the interest rate by 50 basis points on December 14 as the rate of inflation is running well above the central bank's two per cent target. However, after raising the interest rates by 75 basis points for the fourth consecutive time, the economists believe that it will be a “slightly softer” hike of 4.25 per cent to 4.50 per cent this time around. ALSO READ | Dollar gains broadly as upbeat US data muddles Fed rate hike views Economists who as a group can be slower with their forecast of recessions, as mentioned earlier, have also said that the probability of a recession in the upcoming year or two is at least 70 per cent which is up seven per cent from the last poll, said the report. Furthermore, 35 out of 48 economists said that the recession would be shallow and short, while eight economists said it would be long and shallow and four said there won’t be any recession. Inflation is expected to stay over the Fed’s target until at least 2026, said the report, and while the labour market remains strong, the bigger risk was that the rates would peak higher and later than expected. While some economists are expecting the fed funds rate to peak early next year at 4.75 per cent to five per cent, at least 24 of the 72 said that they believe it will go higher. ALSO WATCH | US economy heading into a shallow recession: Poll This comes amid signs of a slowing economy, particularly the housing market which was the epicentre of the 2008 recession in the US. Reportedly, home sales have decreased for nine months straight. Additionally, 27 of 45 economists who provided quarterly (GDP) forecasts estimate a contraction in economic growth for two consecutive quarters or more in the coming year. (With inputs from agencies)

Poll shows that the US economy is headed for a shallow recession: Here’s what it means

Infusing hope in the economy, Federal Reserve chair Jerome Powell said Wednesday that the central bank could ease its pace of interest rate hikes "as soon as" December. Amid soaring prices, the Fed has taken several steps to tame inflation that has hit levels not seen since the 1980s.&nbsp; 
It has all the while tried to avoid pushing the United States into a recession.

"The time for moderating the pace of rate increases may come as soon as the December meeting" of Fed policymakers, Powell said in a speech at the Brookings Institution think tank.

Monetary policy affects the economy and inflation with "uncertain lags," he said. "Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down."

Also Read |&nbsp;<a href="https://www.wionews.com/business-economy/feds-powell-says-higher-interest-rates-will-bring-down-inflation-but-also-inflict-pain-on-americans-510520">Powell says higher interest rates will bring down inflation, but also inflict 'pain' on Americans</a>

After Powell's announcement, the Nasdaq jumped three per cent. The Nasdaq Composite Index was up 2.9 per cent at 11,305.08 as Powell indicated that the Fed could soon shift from its ultra-aggressive response to inflation.&nbsp;&nbsp; &nbsp;

He also warned that its policy will likely have to remain tight "for some time" to restore price stability. He added that the Fed plans to "stay the course until the job is done," saying that loosening policy prematurely might lead to problems.

The central bank has raised the benchmark lending rate by 0.75 percentage points four consecutive times in recent months, out of six rate hikes this year in an aggressive effort to rein in prices.

The latest increase in November took the benchmark lending rate to 3.75-4.0 per cent, the highest since January 2008.

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&nbsp;

The current picture suggests that there are early signs that prices are cooling. However, annual consumer inflation remained at 7.7 per cent in October.

Powell said Wednesday that inflation remains "far too high," and there is still a need to raise interest rates to a "sufficiently restrictive" level.

Powell also expressed hope of "a path to a soft or softish landing," referring to a scenario where unemployment rises but the country avoids a severe recession.

"I think that's very plausible," he said.

(With inputs from agencies)

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Infusing hope in the economy, Federal Reserve chair Jerome Powell said Wednesday that the central bank could ease its pace of interest rate hikes "as soon as" December.

Infusing hope in the economy, Federal Reserve chair Jerome Powell said Wednesday that the central bank could ease its pace of interest rate hikes "as soon as" December. Amid soaring prices, the Fed has taken several steps to tame inflation that has hit levels not seen since the 1980s. It has all the while tried to avoid pushing the United States into a recession. "The time for moderating the pace of rate increases may come as soon as the December meeting" of Fed policymakers, Powell said in a speech at the Brookings Institution think tank. Monetary policy affects the economy and inflation with "uncertain lags," he said. "Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down." Also Read | Powell says higher interest rates will bring down inflation, but also inflict 'pain' on Americans After Powell's announcement, the Nasdaq jumped three per cent. The Nasdaq Composite Index was up 2.9 per cent at 11,305.08 as Powell indicated that the Fed could soon shift from its ultra-aggressive response to inflation. He also warned that its policy will likely have to remain tight "for some time" to restore price stability. He added that the Fed plans to "stay the course until the job is done," saying that loosening policy prematurely might lead to problems. The central bank has raised the benchmark lending rate by 0.75 percentage points four consecutive times in recent months, out of six rate hikes this year in an aggressive effort to rein in prices. The latest increase in November took the benchmark lending rate to 3.75-4.0 per cent, the highest since January 2008. × The current picture suggests that there are early signs that prices are cooling. However, annual consumer inflation remained at 7.7 per cent in October. Powell said Wednesday that inflation remains "far too high," and there is still a need to raise interest rates to a "sufficiently restrictive" level. Powell also expressed hope of "a path to a soft or softish landing," referring to a scenario where unemployment rises but the country avoids a severe recession. "I think that's very plausible," he said. (With inputs from agencies) WATCH WION LIVE HERE You can now write for wionews.com and be a part of the community. Share your stories and opinions with us here.

US Fed chief says interest rate hikes could ease 'as soon as December'

The US Federal Reserve announced a third consecutive interest hike of 75 basis points. Central banks around the world are risking a recession to tame inflation. Which way should India go? Molly Gambhir tells you.

Gravitas: US Federal Reserve risking recession to tame inflation

The United States Federal Reserve has raised its key interest rate by three-quarters of a point for the third time in a row as it continues its fight to control the rising inflation. As a result, the benchmark short-term rate currently ranges between 3 per cent and 3.25 per cent – the highest in nearly 14 years.&nbsp;

However, it is showing no signs of stopping as the officials have forecasted that the rates can go up once again, and by 2023, it can be somewhere around 4.4 per cent – one point more than&nbsp;the June forecast.&nbsp;

Also read |&nbsp;<a href="https://www.wionews.com/world/zelenskiy-at-unga-we-demand-just-punishment-for-russian-crimes-518559">Zelensky at UNGA: We demand 'just punishment' for Russian crimes</a>

The rise in borrowing rates will affect several individuals as well as business loans in the US and it will make mortgaging a car or getting a loan costlier. The goal is to decrease the amount of borrowing from financial institutions which can result in the cooling down of the economy for some time.&nbsp;

According to CNBC, the Federal Reserve believes that this can be a “soft landing” for the economy which will allow them to control inflation by growing slowly for the time period.&nbsp;

Also read |&nbsp;<a href="https://www.wionews.com/world/doj-can-resume-review-of-documents-found-in-donald-trumps-residence-says-us-court-518587" hreflang="en">DOJ can resume review of documents found in Donald Trump's residence, says US court</a>

Jerome Powell, chair of the Federal Reserve since 2018, had previously said that the constant increase in interest rate will “bring some pain to households and businesses” but also added that their "commitment to bringing inflation back down to its two&nbsp;per cent target was unconditional”.&nbsp;

The decision by the US Federal Reserve followed a global trend as the&nbsp;European Central Bank,&nbsp;The Bank of England, the Reserve Bank of Australia, and the Bank of Canada have all increased interest rates recently.&nbsp;

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The United States Federal Reserve has raised its key interest rate by three-quarters of a point for the third time in a row as it continues its fight to control the rising inflation.

The United States Federal Reserve has raised its key interest rate by three-quarters of a point for the third time in a row as it continues its fight to control the rising inflation. As a result, the benchmark short-term rate currently ranges between 3 per cent and 3.25 per cent – the highest in nearly 14 years. However, it is showing no signs of stopping as the officials have forecasted that the rates can go up once again, and by 2023, it can be somewhere around 4.4 per cent – one point more than the June forecast. Also read | Zelensky at UNGA: We demand 'just punishment' for Russian crimes The rise in borrowing rates will affect several individuals as well as business loans in the US and it will make mortgaging a car or getting a loan costlier. The goal is to decrease the amount of borrowing from financial institutions which can result in the cooling down of the economy for some time. According to CNBC, the Federal Reserve believes that this can be a “soft landing” for the economy which will allow them to control inflation by growing slowly for the time period. Also read | DOJ can resume review of documents found in Donald Trump's residence, says US court Jerome Powell, chair of the Federal Reserve since 2018, had previously said that the constant increase in interest rate will “bring some pain to households and businesses” but also added that their "commitment to bringing inflation back down to its two per cent target was unconditional”. The decision by the US Federal Reserve followed a global trend as the European Central Bank, The Bank of England, the Reserve Bank of Australia, and the Bank of Canada have all increased interest rates recently.

US Federal Reserve hikes interest rates to highest level since 2008

According to Federal Reserve head Jerome Powell, taming United States (US) inflation will cause "pain" to American families and businesses, but failing to force prices down from their current 40-year high would be even more harmful. Powell made the remarks in a highly-anticipated speech to international policymakers on Friday.&nbsp;

Powell did not hold back or leave any space for doubt when he spoke to the annual meeting of central bankers at Jackson Hole, Wyoming, promising to act "forcefully."&nbsp;

The strong US employment market will suffer as a result of the world's greatest economy possibly slowing for an extended period, he warned. He referred to these repercussions as the "unfortunate costs of reducing inflation."

This year, the Fed aggressively campaigned to raise interest rates, and Powell made it clear in his unusually brief and very forthright speech that the struggle against inflation is far from done.&nbsp;

In front of the breathtaking Grand Teton mountains, he said, "Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance."&nbsp;

Inflation will be reduced by higher interest rates, slower growth, and softer labour market conditions, but Powell warned that this will hurt both households and companies.&nbsp;

Also Read:<a href="https://www.wionews.com/world/jihadist-ambush-on-gold-mine-vehicle-convoy-kills-seven-in-burkina-faso-510503">&nbsp;Jihadist ambush on gold mine vehicle convoy kills seven in Burkina Faso</a>

But failing to bring back price stability will cause even more suffering.

The US economy is showing modest indications of slowing down, and price pressures are lessening, which has given financial markets hope that the central bank may scale down its aggressive rate hikes and possibly start to reverse course next year.&nbsp;

Powell, however, put an end to expectations of a change in policy by emphasising that the Fed's monetary policy and the benchmark borrowing rate would need to stay "sufficiently restrictive" in order to bring inflation back down to the goal rate of 2 per cent.&nbsp;

The announcement caused a downturn in the US stock market, with all three major stock indices falling three per cent or more, with the Dow shedding 1,000 points.

(with inputs from agencies)

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According to Federal Reserve head Jerome Powell, taming United States (US) inflation will cause "pain" to American families and businesses, but failing to force prices down from their current 40-year high would be even more harmful.

According to Federal Reserve head Jerome Powell, taming United States (US) inflation will cause "pain" to American families and businesses, but failing to force prices down from their current 40-year high would be even more harmful. Powell made the remarks in a highly-anticipated speech to international policymakers on Friday. Powell did not hold back or leave any space for doubt when he spoke to the annual meeting of central bankers at Jackson Hole, Wyoming, promising to act "forcefully." The strong US employment market will suffer as a result of the world's greatest economy possibly slowing for an extended period, he warned. He referred to these repercussions as the "unfortunate costs of reducing inflation." This year, the Fed aggressively campaigned to raise interest rates, and Powell made it clear in his unusually brief and very forthright speech that the struggle against inflation is far from done. In front of the breathtaking Grand Teton mountains, he said, "Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance." Inflation will be reduced by higher interest rates, slower growth, and softer labour market conditions, but Powell warned that this will hurt both households and companies. Also Read: Jihadist ambush on gold mine vehicle convoy kills seven in Burkina Faso But failing to bring back price stability will cause even more suffering. The US economy is showing modest indications of slowing down, and price pressures are lessening, which has given financial markets hope that the central bank may scale down its aggressive rate hikes and possibly start to reverse course next year. Powell, however, put an end to expectations of a change in policy by emphasising that the Fed's monetary policy and the benchmark borrowing rate would need to stay "sufficiently restrictive" in order to bring inflation back down to the goal rate of 2 per cent. The announcement caused a downturn in the US stock market, with all three major stock indices falling three per cent or more, with the Dow shedding 1,000 points. (with inputs from agencies)

Fed's Powell says higher interest rates will bring down inflation, but also inflict 'pain' on Americans

The United States of America is struggling with the sophisticated level of infiltration by China in its myriad systems. From military to tech to finance, China has spread its United Front army everywhere.

According to a report prepared by the Republican staff of the Senate Homeland Security Committee, it has been revealed that the Federal Reserve does not have a system or the adequate resources to counter China, seeking to gather classified, inside information about USA's monetary policy and economy.&nbsp;The report revealed that China's efforts to infiltrate the US central bank had been ongoing for a decade at least.

The report came out on Tuesday and the central bank promptly discarded the findings. However, what's peculiar is that the major legwork for the report was done by the Federal Reserve itself in 2015.&nbsp;

In 2015, the Federal Reserve had run a counterintelligence operation and found 13 moles or 'persons of interest', whose relations with the Chinese government raised suspicions.

One of the former Fed employees highlighted in the report and identified as "Z" had questionable ties to a talent recruitment program in China. It is worth noting that China runs a '1000 talents programme', started in 2008 that attempts to steal Intellectual Property (IP) and other advanced technologies from foreign nations by poaching their experts.&nbsp;

The report by the GOP lawmakers merely builds upon the Federal Reserve report. By disputing the new findings, the central bank is contradicting itself and its findings from seven years ago.&nbsp;

How does China infiltrate a country?

Nazi Germany under Adolf Hitler employed the subtle art of propaganda and deception to convince the masses to conduct the genocide of fellow human beings. Hitler knew the power of propaganda and thus wrote two chapters about it in 'Mein Kampf'.&nbsp;

In the present-day world, no one comes closer to beating China in this game. By using an intricate network of spies, individuals and coalitions, China has been able to raise an army which in popular parlance is called the 'United Front'.&nbsp;&nbsp;

The United Front has been described by Chinese President Xi Jinping as his secret 'magic weapon'. The operations of most of the members in the United Front are covert and spread beyond the middle kingdom.&nbsp;

WATCH:&nbsp;<a href="https://www.wionews.com/videos/gravitas-united-front-xi-jinpings-magic-weapon-305246">Gravitas: United Front | Xi Jinping's 'magic weapon'</a>

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&nbsp;

The think tanks, schools, media organisations and every other conceivable civil system are compromised by these workers. They tap individuals like former fed employee' Z' and shower them with gifts and make them a pawn in the long game.&nbsp;

(With inputs from agencies) 
 
WATCH WION LIVE HERE:&nbsp;

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The United States of America is struggling with the sophisticated level of infiltration by China in its myriad systems. From military to tech to finance, China has spread its United Front army everywhere.

The United States of America is struggling with the sophisticated level of infiltration by China in its myriad systems. From military to tech to finance, China has spread its United Front army everywhere. According to a report prepared by the Republican staff of the Senate Homeland Security Committee, it has been revealed that the Federal Reserve does not have a system or the adequate resources to counter China, seeking to gather classified, inside information about USA's monetary policy and economy. The report revealed that China's efforts to infiltrate the US central bank had been ongoing for a decade at least. The report came out on Tuesday and the central bank promptly discarded the findings. However, what's peculiar is that the major legwork for the report was done by the Federal Reserve itself in 2015. In 2015, the Federal Reserve had run a counterintelligence operation and found 13 moles or 'persons of interest', whose relations with the Chinese government raised suspicions. One of the former Fed employees highlighted in the report and identified as "Z" had questionable ties to a talent recruitment program in China. It is worth noting that China runs a '1000 talents programme', started in 2008 that attempts to steal Intellectual Property (IP) and other advanced technologies from foreign nations by poaching their experts. The report by the GOP lawmakers merely builds upon the Federal Reserve report. By disputing the new findings, the central bank is contradicting itself and its findings from seven years ago. How does China infiltrate a country? Nazi Germany under Adolf Hitler employed the subtle art of propaganda and deception to convince the masses to conduct the genocide of fellow human beings. Hitler knew the power of propaganda and thus wrote two chapters about it in 'Mein Kampf'. In the present-day world, no one comes closer to beating China in this game. By using an intricate network of spies, individuals and coalitions, China has been able to raise an army which in popular parlance is called the 'United Front'. The United Front has been described by Chinese President Xi Jinping as his secret 'magic weapon'. The operations of most of the members in the United Front are covert and spread beyond the middle kingdom. WATCH: Gravitas: United Front | Xi Jinping's 'magic weapon' × The think tanks, schools, media organisations and every other conceivable civil system are compromised by these workers. They tap individuals like former fed employee' Z' and shower them with gifts and make them a pawn in the long game. (With inputs from agencies) WATCH WION LIVE HERE:

China has infiltrated the US Federal Reserve for over a decade: GOP lawmakers allege in report

The United States Federal Reserve has once again hiked the interest rate by 0.75%, this as the country's inflation level has touched 40-year high. This is the second in a row and fourth time this year, that the Fed has raised interest rates.

US Federal reserve hikes interest rates by 0.75%

The head of the Federal Reserve, Jerome Powell, declared that a US recession is "definitely a possibility" and cautioned that preventing one would primarily depend on circumstances beyond the Federal Reserve's control. In his testimony to the Senate Banking Committee on Wednesday, the Fed chair acknowledged it was now harder for the central bank to control surging inflation while sustaining a robust job market.

Although he conceded that external variables like the conflict in the Ukraine and China's Covid-19 policy could further muddle the picture, he suggested that the US was sufficiently resilient to endure stricter monetary policy without entering a depression.

Also read |&nbsp;<a href="https://www.wionews.com/business-economy/day-after-fed-rate-hike-us-stocks-plunge-amid-recession-fears-488925">Day after Fed rate hike, US stocks plunge amid recession fears</a>

"We need to get inflation back down to 2 per cent," Powell told lawmakers. "We're using our tools to do that. And the public should believe that we will get inflation back down to 2 per cent&nbsp;over time."

"You know what's worse than high inflation and low unemployment?" Warren said. "It's high inflation and a recession with millions of people out of work. I hope you'll reconsider that, before you drive this economy off a cliff."&nbsp;

"It's certainly a possibility," Powell said. "It's not our intended outcome at all, but it's certainly a possibility."

Watch |&nbsp;US Fed chair Jerome Powell says recession a possibility

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"We're not trying to provoke — and don't think that we will need to provoke — a recession," he added. "But we do think it's absolutely essential that we restore price stability, really for the benefit of the labour market as much as anything else."&nbsp;

Despite acknowledging that the likelihood of an economic downturn is increased by the ongoing conflict in Ukraine and persistent supply-chain issues, Powell emphasised that the economy is well-positioned to handle higher interest rates.

Also read |&nbsp;<a href="https://www.wionews.com/world/treasury-secretary-janet-yellen-says-us-recession-not-inevitable-489750">Treasury Secretary Janet Yellen says US recession not 'inevitable'</a>

Forecasters are spotting storm clouds on the horizon more frequently now. The likelihood of a recession in the next 12 months is now 44 per cent, up from 28 per&nbsp;cent in April, according to economists surveyed by the Wall Street Journal.

Despite stating that it is famously difficult to foresee recessions, Powell said that he doesn't believe the risk is particularly significant. 
&nbsp;

WATCH WION LIVE HERE

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You can now write for wionews.com and be a part of the community. Share your stories and opinions with us <a href="https://www.wionews.com/content-contribution-registration-form">here</a>.

The head of the Federal Reserve, Jerome Powell, declared that a US recession is "definitely a possibility" and cautioned that preventing one would primarily depend on circumstances beyond the Federal Reserve's control.

The head of the Federal Reserve, Jerome Powell, declared that a US recession is "definitely a possibility" and cautioned that preventing one would primarily depend on circumstances beyond the Federal Reserve's control. In his testimony to the Senate Banking Committee on Wednesday, the Fed chair acknowledged it was now harder for the central bank to control surging inflation while sustaining a robust job market. Although he conceded that external variables like the conflict in the Ukraine and China's Covid-19 policy could further muddle the picture, he suggested that the US was sufficiently resilient to endure stricter monetary policy without entering a depression. Also read | Day after Fed rate hike, US stocks plunge amid recession fears "We need to get inflation back down to 2 per cent," Powell told lawmakers. "We're using our tools to do that. And the public should believe that we will get inflation back down to 2 per cent over time." "You know what's worse than high inflation and low unemployment?" Warren said. "It's high inflation and a recession with millions of people out of work. I hope you'll reconsider that, before you drive this economy off a cliff." "It's certainly a possibility," Powell said. "It's not our intended outcome at all, but it's certainly a possibility." Watch | US Fed chair Jerome Powell says recession a possibility "We're not trying to provoke — and don't think that we will need to provoke — a recession," he added. "But we do think it's absolutely essential that we restore price stability, really for the benefit of the labour market as much as anything else." Despite acknowledging that the likelihood of an economic downturn is increased by the ongoing conflict in Ukraine and persistent supply-chain issues, Powell emphasised that the economy is well-positioned to handle higher interest rates. Also read | Treasury Secretary Janet Yellen says US recession not 'inevitable' Forecasters are spotting storm clouds on the horizon more frequently now. The likelihood of a recession in the next 12 months is now 44 per cent, up from 28 per cent in April, according to economists surveyed by the Wall Street Journal. Despite stating that it is famously difficult to foresee recessions, Powell said that he doesn't believe the risk is particularly significant. WATCH WION LIVE HERE You can now write for wionews.com and be a part of the community. Share your stories and opinions with us here.

US recession is 'certainly a possibility': Federal Reserve Chair Powell 

The Federal Reserve announced a 75 basis point interest rate hike, their highest since 1994. How did markets react to this announcement? Will it be enough to tackle inflation and prevent a recession? Palki Sharma tells you.

Gravitas: US Fed announces highest interest hike since 1994

For the third time this year, the Federal reserve has raised interest rates and this time by three-quarters of a percent. With this the stakes for the US economy and American consumers are high, Federal Reserve chairman Jerome Powell made the announcement on Wednesday where he reiterated that they are committed to bringing inflation down.

United States: Federal Reserve raises benchmark rates, most aggressive hike since 1994

When it comes to the economy, more is usually better.

Bigger job gains, faster wage growth and more consumer spending are all, in normal times, signs of a healthy economy. Growth might not be sufficient to ensure widespread prosperity, but it is necessary — making any loss of momentum a worrying sign that the economy could be losing steam or, worse, headed into a recession.

But these are not normal times. With nearly twice as many open jobs as available workers and companies struggling to meet record demand, many economists and policymakers argue that what the economy needs right now is not more, but less — less hiring, less wage growth and above all less inflation, which is running at its fastest pace in four decades.

Jerome Powell, the Federal Reserve chair, has called the labor market “unsustainably hot,” and the central bank is raising interest rates to try to cool it. President Joe Biden, who met with Powell on Tuesday, wrote in an opinion article this week in The Wall Street Journal that a slowdown in job creation “won’t be a cause for concern” but would rather be “a sign that we are successfully moving into the next phase of recovery.”

“We want a full and sustainable recovery,” said Claudia Sahm, a former Fed economist who has studied the government’s economic policy response to the pandemic. “The reason that we can’t take the victory lap right now on the recovery — the reason it is incomplete — is because inflation is too high.”

But a cooling economy carries its own risks. Despite inflation, the recovery from the pandemic recession has been among the strongest on record, with unemployment falling rapidly and incomes rebounding fastest for those at the bottom. If the recovery slows too much, it could undo much of that progress.

“That’s the needle we’re trying to thread right now,” said Harry Holzer, a Georgetown University economist. “We want to give up as few of the gains that we’ve made as possible.”

Economists disagree about the best way to strike that balance. Powell, after playing down inflation last year, now says reining it in is his top priority — and argues that the central bank can do so without cutting the recovery short. Some economists, particularly on the right, want the Fed to be more aggressive, even at the risk of causing a recession. Others, especially on the left, argue that inflation, while a problem, is a lesser evil than unemployment and that the Fed should therefore pursue a more cautious approach.

But where progressives and conservatives largely agree is that evaluating the economy will be particularly difficult over the next several months. Distinguishing a healthy cool-down from a worrying stall will require looking beyond the indicators that typically make headlines.

“It’s a very difficult time to interpret economic data and to even understand what’s happening with the economy,” said Michael Strain, an economist with the American Enterprise Institute. “We’re entering a period where there’s going to be tons of debate over whether we are in a recession right now.”

Slower job growth could be good (or bad).

The jobs report for May, which the Labor Department will release Friday, will provide a case study in the difficulty of interpreting economic data right now.

Ordinarily, one number from the monthly report — the overall jobs added or lost — is enough to signal the labor market’s health. That is because most of the time, the driving force in the labor market is demand. If business is strong, employers will want more workers, and job growth will accelerate. When demand lags, then hiring slows, layoffs mount and job growth stalls.

Now, though, the limiting factor in the labor market is not demand but supply. Employers are eager to hire: There were 11.4 million job openings at the end of April, close to a record. But there are roughly 500,000 fewer people either working or actively looking for work than when the pandemic began, leaving employers scrambling to fill available jobs.

The labor force has grown significantly this year, and forecasters expect more workers to return as the pandemic and the disruptions it caused continue to recede. But the pandemic may also have driven longer-lasting shifts in Americans’ work habits, and economists are not sure when or under what circumstances the labor force will make a complete rebound. Even then, there might not be enough workers to meet the extraordinarily high level of employer demand.

Most forecasters expect the report Friday to show that job growth slowed in May. But that number alone will not reveal whether the mismatch between supply and demand is easing. Slowing job growth coupled with a growing labor force could be a sign that the labor market is coming back into balance as demand cools and supply improves. But the same level of job growth without an increase in the supply of workers could indicate the opposite: that employers are having an even more difficult time finding the help they need.

Many economists say they will be watching the labor force participation rate — the share of the population either working or looking for work — just as closely as the headline job growth figures in coming months.

“One can unambiguously root for higher labor force participation,” said Jason Furman, a Harvard economist who was an adviser to President Barack Obama. “Beyond that, nothing else is unambiguous.”

Wage growth may need to slow.

Another number will be getting a lot of attention from economists, policymakers and investors: wage growth.

Employers have responded to the hot competition for workers exactly the way Econ 101 says they should: by raising pay. Average hourly earnings were up 5.5% in April from a year earlier, more than twice the rate they were rising before the pandemic.

Normally, faster wage growth would be good news. Persistently weak pay increases were a bleak hallmark of the long, slow recovery that followed the last recession. But even some economists who bemoaned those sluggish gains at the time say the current rate of wage growth is unsustainable.

“That’s something that we’re used to saying pretty unequivocally is good, but in this case, it just raises the risk that the economy is overheating further,” said Adam Ozimek, chief economist of the Economic Innovation Group, a Washington research organization. As long as wages are rising 5% or 6% per year, he said, it will be all but impossible to bring inflation down to the Fed’s 2% target.

Fed officials are watching closely for signs of a “wage-price spiral,” a self-reinforcing pattern in which workers expect inflation and therefore demand raises, leading employers to increase prices to compensate. Once such a cycle takes hold, it can be difficult to break — a prospect Powell has cited in explaining why the central bank has become more aggressive in fighting inflation.

“It’s a risk that we simply can’t run,” he said at a news conference last month. “We can’t allow a wage-price spiral to happen. And we can’t allow inflation expectations to become unanchored. It’s just something that we can’t allow to happen, and so we’ll look at it that way.”

Some economists, especially on the left, say there is little evidence that wage growth is feeding inflation, let alone that a wage-price spiral is developing. They contend that the recent pay gains reflect a rare moment of worker power in the labor market and that the Fed would be wrong to snuff it out.

But wages, on average, are not keeping up with inflation, meaning that many workers are losing ground despite the strong labor market. For workers to prosper, their wages need to be rising after adjusting for inflation — which almost certainly requires inflation to come down.

“What people are feeling is real,” said Darrick Hamilton, an economist at the New School in New York. “A wage increase that’s not as high as the increase in the price of milk does not make you better off.”

Hamilton argues that the Fed is right to try to rein in inflation but that it needs to design its policies with the recognition that it will be Black workers, along with other disadvantaged groups, who suffer most if the recovery falters. “The question that we should be asking is, who bears the burden” of the Fed’s policies, he said.

Keep an eye on job openings.

Historically, even small increases in the unemployment rate have almost always signaled the start of a recession. Should that relationship hold in the current environment, it suggests that if policymakers want to tame inflation without causing a downturn, they will have to find a way to cool off the labor market without causing a large number of layoffs.

Powell and other officials argue that is possible, partly because so many jobs are available right now. In a speech in Germany this week, Christopher Waller, a Fed governor, argued that as demand slows, employers are likely to start posting fewer jobs before they turn to layoffs. That could result in slower wage growth — since with fewer employers trying to hire, there will be less competition for workers — without a big increase in unemployment.

“I think there’s room right now for inflation to come down a significant amount without unemployment coming up,” said Mike Konczal, an economist at the Roosevelt Institute.

The Fed’s efforts to cool off the economy are already bearing fruit, Konczal said. Mortgage rates have risen sharply, and there are signs that the housing market is slowing as a result. The stock market has lost almost 15% of its value since the beginning of the year. That loss of wealth is likely to lead at least some consumers to pull back on their spending, which will lead to a pullback in hiring. Job openings fell in April, though they remained high, and wage growth has eased.

“There’s a lot of evidence to suggest the economy has already slowed down,” Konczal said. He said he was optimistic that the United States was on a path toward “normalizing to a regular good economy” instead of the boomlike one it has experienced over the past year.

But the thing about such a “soft landing,” as Fed officials call it, is that it is still a landing. Wage growth will be slower. Job opportunities will be fewer. Workers will have less leverage to demand flexible schedules or other perks. For the Fed, achieving that outcome without causing a recession would be a victory — but it might not feel like one to workers.

When it comes to the economy, more is usually better. Bigger job gains, faster wage growth and more consumer spending are all, in normal times, signs of a healthy economy.

When it comes to the economy, more is usually better. Bigger job gains, faster wage growth and more consumer spending are all, in normal times, signs of a healthy economy. Growth might not be sufficient to ensure widespread prosperity, but it is necessary — making any loss of momentum a worrying sign that the economy could be losing steam or, worse, headed into a recession. But these are not normal times. With nearly twice as many open jobs as available workers and companies struggling to meet record demand, many economists and policymakers argue that what the economy needs right now is not more, but less — less hiring, less wage growth and above all less inflation, which is running at its fastest pace in four decades. Jerome Powell, the Federal Reserve chair, has called the labor market “unsustainably hot,” and the central bank is raising interest rates to try to cool it. President Joe Biden, who met with Powell on Tuesday, wrote in an opinion article this week in The Wall Street Journal that a slowdown in job creation “won’t be a cause for concern” but would rather be “a sign that we are successfully moving into the next phase of recovery.” “We want a full and sustainable recovery,” said Claudia Sahm, a former Fed economist who has studied the government’s economic policy response to the pandemic. “The reason that we can’t take the victory lap right now on the recovery — the reason it is incomplete — is because inflation is too high.” But a cooling economy carries its own risks. Despite inflation, the recovery from the pandemic recession has been among the strongest on record, with unemployment falling rapidly and incomes rebounding fastest for those at the bottom. If the recovery slows too much, it could undo much of that progress. “That’s the needle we’re trying to thread right now,” said Harry Holzer, a Georgetown University economist. “We want to give up as few of the gains that we’ve made as possible.” Economists disagree about the best way to strike that balance. Powell, after playing down inflation last year, now says reining it in is his top priority — and argues that the central bank can do so without cutting the recovery short. Some economists, particularly on the right, want the Fed to be more aggressive, even at the risk of causing a recession. Others, especially on the left, argue that inflation, while a problem, is a lesser evil than unemployment and that the Fed should therefore pursue a more cautious approach. But where progressives and conservatives largely agree is that evaluating the economy will be particularly difficult over the next several months. Distinguishing a healthy cool-down from a worrying stall will require looking beyond the indicators that typically make headlines. “It’s a very difficult time to interpret economic data and to even understand what’s happening with the economy,” said Michael Strain, an economist with the American Enterprise Institute. “We’re entering a period where there’s going to be tons of debate over whether we are in a recession right now.” Slower job growth could be good (or bad). The jobs report for May, which the Labor Department will release Friday, will provide a case study in the difficulty of interpreting economic data right now. Ordinarily, one number from the monthly report — the overall jobs added or lost — is enough to signal the labor market’s health. That is because most of the time, the driving force in the labor market is demand. If business is strong, employers will want more workers, and job growth will accelerate. When demand lags, then hiring slows, layoffs mount and job growth stalls. Now, though, the limiting factor in the labor market is not demand but supply. Employers are eager to hire: There were 11.4 million job openings at the end of April, close to a record. But there are roughly 500,000 fewer people either working or actively looking for work than when the pandemic began, leaving employers scrambling to fill available jobs. The labor force has grown significantly this year, and forecasters expect more workers to return as the pandemic and the disruptions it caused continue to recede. But the pandemic may also have driven longer-lasting shifts in Americans’ work habits, and economists are not sure when or under what circumstances the labor force will make a complete rebound. Even then, there might not be enough workers to meet the extraordinarily high level of employer demand. Most forecasters expect the report Friday to show that job growth slowed in May. But that number alone will not reveal whether the mismatch between supply and demand is easing. Slowing job growth coupled with a growing labor force could be a sign that the labor market is coming back into balance as demand cools and supply improves. But the same level of job growth without an increase in the supply of workers could indicate the opposite: that employers are having an even more difficult time finding the help they need. Many economists say they will be watching the labor force participation rate — the share of the population either working or looking for work — just as closely as the headline job growth figures in coming months. “One can unambiguously root for higher labor force participation,” said Jason Furman, a Harvard economist who was an adviser to President Barack Obama. “Beyond that, nothing else is unambiguous.” Wage growth may need to slow. Another number will be getting a lot of attention from economists, policymakers and investors: wage growth. Employers have responded to the hot competition for workers exactly the way Econ 101 says they should: by raising pay. Average hourly earnings were up 5.5% in April from a year earlier, more than twice the rate they were rising before the pandemic. Normally, faster wage growth would be good news. Persistently weak pay increases were a bleak hallmark of the long, slow recovery that followed the last recession. But even some economists who bemoaned those sluggish gains at the time say the current rate of wage growth is unsustainable. “That’s something that we’re used to saying pretty unequivocally is good, but in this case, it just raises the risk that the economy is overheating further,” said Adam Ozimek, chief economist of the Economic Innovation Group, a Washington research organization. As long as wages are rising 5% or 6% per year, he said, it will be all but impossible to bring inflation down to the Fed’s 2% target. Fed officials are watching closely for signs of a “wage-price spiral,” a self-reinforcing pattern in which workers expect inflation and therefore demand raises, leading employers to increase prices to compensate. Once such a cycle takes hold, it can be difficult to break — a prospect Powell has cited in explaining why the central bank has become more aggressive in fighting inflation. “It’s a risk that we simply can’t run,” he said at a news conference last month. “We can’t allow a wage-price spiral to happen. And we can’t allow inflation expectations to become unanchored. It’s just something that we can’t allow to happen, and so we’ll look at it that way.” Some economists, especially on the left, say there is little evidence that wage growth is feeding inflation, let alone that a wage-price spiral is developing. They contend that the recent pay gains reflect a rare moment of worker power in the labor market and that the Fed would be wrong to snuff it out. But wages, on average, are not keeping up with inflation, meaning that many workers are losing ground despite the strong labor market. For workers to prosper, their wages need to be rising after adjusting for inflation — which almost certainly requires inflation to come down. “What people are feeling is real,” said Darrick Hamilton, an economist at the New School in New York. “A wage increase that’s not as high as the increase in the price of milk does not make you better off.” Hamilton argues that the Fed is right to try to rein in inflation but that it needs to design its policies with the recognition that it will be Black workers, along with other disadvantaged groups, who suffer most if the recovery falters. “The question that we should be asking is, who bears the burden” of the Fed’s policies, he said. Keep an eye on job openings. Historically, even small increases in the unemployment rate have almost always signaled the start of a recession. Should that relationship hold in the current environment, it suggests that if policymakers want to tame inflation without causing a downturn, they will have to find a way to cool off the labor market without causing a large number of layoffs. Powell and other officials argue that is possible, partly because so many jobs are available right now. In a speech in Germany this week, Christopher Waller, a Fed governor, argued that as demand slows, employers are likely to start posting fewer jobs before they turn to layoffs. That could result in slower wage growth — since with fewer employers trying to hire, there will be less competition for workers — without a big increase in unemployment. “I think there’s room right now for inflation to come down a significant amount without unemployment coming up,” said Mike Konczal, an economist at the Roosevelt Institute. The Fed’s efforts to cool off the economy are already bearing fruit, Konczal said. Mortgage rates have risen sharply, and there are signs that the housing market is slowing as a result. The stock market has lost almost 15% of its value since the beginning of the year. That loss of wealth is likely to lead at least some consumers to pull back on their spending, which will lead to a pullback in hiring. Job openings fell in April, though they remained high, and wage growth has eased. “There’s a lot of evidence to suggest the economy has already slowed down,” Konczal said. He said he was optimistic that the United States was on a path toward “normalizing to a regular good economy” instead of the boomlike one it has experienced over the past year. But the thing about such a “soft landing,” as Fed officials call it, is that it is still a landing. Wage growth will be slower. Job opportunities will be fewer. Workers will have less leverage to demand flexible schedules or other perks. For the Fed, achieving that outcome without causing a recession would be a victory — but it might not feel like one to workers.

Why a not-so-hot economy might be good news

US Federal reserve has hiked interest rates by 50 basis points, in a bid to reign in the raging inflation in the country, the hike is the biggest rate hike since 2000 and the Fed chair has promised to use all available tools to check the four decade high inflation rate.

Fed raises interest rates by 50-bps, markets welcome interest rate

The Federal Reserve on Wednesday announced its&nbsp;biggest&nbsp;rate&nbsp;hike&nbsp;since&nbsp;2000, with a half percentage point&nbsp;increase&nbsp;as it works to crush soaring US&nbsp;inflation.

With&nbsp;inflation&nbsp;at the highest&nbsp;rate&nbsp;in four decades, Federal Reserve Chair Jerome Powell sent a message directly to the American people, expressing concern for the pain caused by rising prices, and pledging to use all available tools to bring them down.

But he told reporters he remains confident the economy is strong enough to withstand&nbsp;rate&nbsp;increases without tipping into a recession.

Also read |&nbsp;<a href="https://www.wionews.com/photos/from-recession-to-inflation-how-the-us-fed-has-dealt-with-crises-475472">From recession to inflation, how the US Fed has dealt with crisis</a>

After a quarter-point hike in March, the US&nbsp;central bank's policy-setting Federal Open Market Committee (FOMC) pushed the benchmark interest&nbsp;rate&nbsp;above 0.75 per cent as it works to cool the economy, and confirmed more increases "will be appropriate."

The hike will raise the costs of all types of borrowing, from mortgages to credit cards to car loans, cooling demand and business activity.

Inflation&nbsp;has become an overriding concern after the world's largest economy saw annual consumer prices surge 8.5 per cent over the 12 months to March,&nbsp;the&nbsp;biggest&nbsp;jump&nbsp;since&nbsp;December 1981.

Policymakers continue to believe&nbsp;inflation&nbsp;will gradually return to the&nbsp;Fed's two-percent target as it raises borrowing costs, but in a statement following the conclusion of its two-day meeting, the FOMC said it will be "highly attentive to&nbsp;inflation&nbsp;risks."

In an unusual move, Powell opened his news conference speaking to the American people.

"Inflation&nbsp;is much too high. And we understand the hardship that is causing," he said, promising to use all tools available to bring it down "expeditiously."

Watch |&nbsp;US Fed lifts policy rate by 0.25%

<div class="videoWrapper trancodeVideo"><iframe allowfullscreen="" autoplay="1" class="includeVideo" frameborder="0" height="350" src="https://www.wionews.com/videos/us-fed-lifts-policy-rate-by-025-463042/embed" style="width:100%;max-width:560px;" width="560"></iframe></div>

He acknowledged that higher interest rates also bring their share of pain, but "everyone would be better off if we can get this job done. The sooner, the better."

To achieve that aim, he said "additional 50-basis point increases should be on the table at the next couple of meetings," however, a more aggressive three-quarter point hike is not under consideration.

The&nbsp;Fed's goal is to engineer a "soft landing," reining in&nbsp;inflation&nbsp;while avoiding a contraction in economic activity, and Powell said that outcome is likely.

"It's a strong economy, and nothing about it suggested... that it's close to or vulnerable to a recession," he said.

Ukraine war impact

But with China's pandemic lockdowns worsening global supply snarls and the war in Ukraine pushing commodity prices higher, analysts fear factors beyond the&nbsp;central bank's control could undermine that goal, and perhaps plunge the US economy into a recession.

WATCH WION LIVE HERE:&nbsp;

<iframe allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="350" src="https://www.wionews.com/live-tv/embed?autoplay=1&amp;mute=1" width="100%"></iframe>

The FOMC acknowledged the "highly uncertain" impact of Russia's invasion of Ukraine and Western sanctions on Moscow, which are "creating additional upward pressure on&nbsp;inflation&nbsp;and are likely to weigh on economic activity."&nbsp;

In addition, Covid lockdowns in China "are likely to exacerbate supply chain disruptions," the statement said.&nbsp;

Offloading bonds

Though it contracted in the first quarter, Powell said the economy was healthy enough to withstand higher rates, and pointed to robust job gains and strong household and business spending.

However, central bankers cannot engineer a solution for the worker shortages that have challenged businesses and raised fears of a wage-price spiral, when employees demand higher salaries and fuel price increases.&nbsp;

Powell downplayed those concerns, saying some of the&nbsp;inflation&nbsp;is due to price shocks, while&nbsp;Fed&nbsp;policy can help address the "imbalance" in the labor market.

On Wednesday, payroll services firm ADP reported private employers added a weaker-than-expected 247,000 workers in April, a sign that companies are struggling to find available labor, while government data released Tuesday showed there are nearly two openings for every job seeker.

Also read |&nbsp;<a href="https://www.wionews.com/economy/us-fed-officials-firm-up-plans-for-a-swift-pullback-of-economic-help-455510">US Fed officials firm up plans for a swift pullback of economic help</a>

The FOMC also said it would begin reducing its massive bond holdings starting June 1, beginning at the pace of $47.5 billion a month, and then doubling after three months, also aimed at removing stimulus from the economy.

The decision was widely expected, and many economists believe the FOMC will again hike rates by a half-point in June, though Ian Shepherdson of Pantheon Economics said, "After that we think all bets are off, given the likelihood of a steep, sustained drop in&nbsp;inflation, a clear softening in manufacturing, and a meltdown in housing market activity."

Stock markets cheered the&nbsp;Fed&nbsp;move, closing sharply higher, with big gains in interest-sensitive tech shares.

The Federal Reserve on Wednesday announced its biggest rate hike since 2000, with a half percentage point increase as it works to crush soaring US inflation. With inflation at the highest rate in four decades, Federal Reserve Chair Jerome Powell sent a message directly to the American people, expressing concern for the pain caused by rising prices, and pledging to use all available tools to bring them down.

The Federal Reserve on Wednesday announced its biggest rate hike since 2000, with a half percentage point increase as it works to crush soaring US inflation. With inflation at the highest rate in four decades, Federal Reserve Chair Jerome Powell sent a message directly to the American people, expressing concern for the pain caused by rising prices, and pledging to use all available tools to bring them down. But he told reporters he remains confident the economy is strong enough to withstand rate increases without tipping into a recession. Also read | From recession to inflation, how the US Fed has dealt with crisis After a quarter-point hike in March, the US central bank's policy-setting Federal Open Market Committee (FOMC) pushed the benchmark interest rate above 0.75 per cent as it works to cool the economy, and confirmed more increases "will be appropriate." The hike will raise the costs of all types of borrowing, from mortgages to credit cards to car loans, cooling demand and business activity. Inflation has become an overriding concern after the world's largest economy saw annual consumer prices surge 8.5 per cent over the 12 months to March, the biggest jump since December 1981. Policymakers continue to believe inflation will gradually return to the Fed's two-percent target as it raises borrowing costs, but in a statement following the conclusion of its two-day meeting, the FOMC said it will be "highly attentive to inflation risks." In an unusual move, Powell opened his news conference speaking to the American people. "Inflation is much too high. And we understand the hardship that is causing," he said, promising to use all tools available to bring it down "expeditiously." Watch | US Fed lifts policy rate by 0.25% He acknowledged that higher interest rates also bring their share of pain, but "everyone would be better off if we can get this job done. The sooner, the better." To achieve that aim, he said "additional 50-basis point increases should be on the table at the next couple of meetings," however, a more aggressive three-quarter point hike is not under consideration. The Fed's goal is to engineer a "soft landing," reining in inflation while avoiding a contraction in economic activity, and Powell said that outcome is likely. "It's a strong economy, and nothing about it suggested... that it's close to or vulnerable to a recession," he said. Ukraine war impact But with China's pandemic lockdowns worsening global supply snarls and the war in Ukraine pushing commodity prices higher, analysts fear factors beyond the central bank's control could undermine that goal, and perhaps plunge the US economy into a recession. WATCH WION LIVE HERE: The FOMC acknowledged the "highly uncertain" impact of Russia's invasion of Ukraine and Western sanctions on Moscow, which are "creating additional upward pressure on inflation and are likely to weigh on economic activity." In addition, Covid lockdowns in China "are likely to exacerbate supply chain disruptions," the statement said. Offloading bonds Though it contracted in the first quarter, Powell said the economy was healthy enough to withstand higher rates, and pointed to robust job gains and strong household and business spending. However, central bankers cannot engineer a solution for the worker shortages that have challenged businesses and raised fears of a wage-price spiral, when employees demand higher salaries and fuel price increases. Powell downplayed those concerns, saying some of the inflation is due to price shocks, while Fed policy can help address the "imbalance" in the labor market. On Wednesday, payroll services firm ADP reported private employers added a weaker-than-expected 247,000 workers in April, a sign that companies are struggling to find available labor, while government data released Tuesday showed there are nearly two openings for every job seeker. Also read | US Fed officials firm up plans for a swift pullback of economic help The FOMC also said it would begin reducing its massive bond holdings starting June 1, beginning at the pace of $47.5 billion a month, and then doubling after three months, also aimed at removing stimulus from the economy. The decision was widely expected, and many economists believe the FOMC will again hike rates by a half-point in June, though Ian Shepherdson of Pantheon Economics said, "After that we think all bets are off, given the likelihood of a steep, sustained drop in inflation, a clear softening in manufacturing, and a meltdown in housing market activity." Stock markets cheered the Fed move, closing sharply higher, with big gains in interest-sensitive tech shares.

US Fed makes biggest rate increase since 2000 to fight inflation

A number of global equity markets edged higher on Tuesday while 10-year US Treasury yields slid from the 3% level as investors remained cautious, expecting the Federal Reserve to hike rates to curb inflation.

US treasury yields slip from 3% level for first time since 2018

United States has become the latest country to jump on digital currency bandwagon. US central bank Federal Reserve, it has said in a long-awaited discussion paper released yesterday that creating an official digital version of US dollar could give Americans more and speedier payment options.

Federal Reserve kicks off debate on issuing its own digital currency

It is easy to recall the 1980s as being a boom time for the United States economy — a time of gleaming excess that, among other things, powered Ronald Reagan to a landslide reelection in 1984.

But the decade didn’t start out quite so sunny. And understanding the history of how the economy went from bust to boom in the early 1980s offers a surprising model for optimism about how the U.S. economy could progress in the next couple of years.

All it would take is for the Federal Reserve to pull off a delicate economic pivot that is the mirror image of the one it managed four decades ago.

Now, high inflation and a seemingly never-ending pandemic are depressing Americans’ attitudes about the economy. By contrast, in December 1981 — when Reagan had been president for 11 months, just as President Joe Biden has now — conditions were by most measures substantially worse. The unemployment rate was 8.5% and would keep rising throughout 1982. Inflation was 8.9%, and indexes of consumer sentiment were abysmal.

In an issue of Time magazine published this month 40 years ago, if you flip past a cover story that ranks the performance of Reagan’s Cabinet and an advertisement pitching a Smith-Corona typewriter as a holiday gift for your child, you see just how bad the vibes were.

“Gathering Gloom for Workers,” goes the headline, reporting that “A spreading slump swells the long gray line of the unemployed.” The article said joblessness was so high in Detroit that community leaders “fear that they are sitting on a smoldering powder keg of urban unrest.”

If nothing else, this chronology is a reminder that conditions can change surprisingly quickly. By the time Reagan was reelected in 1984, the jobless rate was 7.2% and falling and inflation was down to 4.2%.

Some commentators have argued that Biden has the opportunity to be an inverse of Reagan politically (much of this commentary, it should be noted, came before Sen. Joe Manchin pulled his support from the president’s signature Build Back Better bill ). And there is of course no telling what the next three years will bring politically, regardless of what happens to the economy.

But in terms of the economic backdrop, it is important to understand the “why” of the Reagan economic reversal.

Those gloomy unemployment numbers in Reagan’s first two years were a consequence of aggressive tightening of monetary policy by Fed Chair Paul Volcker, who was aiming to end the high inflation of the 1970s.

Over the course of the previous decade, high inflation had come to seem inevitable. This led labor unions and individual workers to demand higher pay raises and made businesses willing to pay more and charge more for their products. This had settled into a vicious cycle, with deep social and political ramifications.

“Inflation wasn’t just an economic problem,” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute. “It gave people the impression of a social and political breakdown, that the system was not working.”

Volcker wanted to break that psychology. He did it with steep interest rate increases that, in the service of inflation control, brought the worst downturn in five decades.

Across the government, including in the Reagan administration, there was a concerted focus on breaking inflation, even as the job market worsened. “What I find startling about this downturn is that so few politicians are calling for federal job training or the extension of unemployment benefits,” said Alan Greenspan, a former presidential adviser who would go on to succeed Volcker, in the 1981 Time article. “Five years ago, politicians would have been stumbling all over themselves to demand anti-recession spending.”

By late 1981, there were signs it was starting to work. That same article, for example, notes that Teamsters who had managed a 31.5% pay raise in 1979 promised to be “reasonable” in the next negotiations, and that employees at major airlines had agreed to a 10% wage reduction.

With this progress against inflation, Volcker was ready to relent and begin lowering interest rates. This enabled a speedy recovery from the recession, powering the Reagan boom and a period in which both unemployment and inflation were steadily falling.

As the Fed chair now, Jerome Powell has until recently faced the opposite problem.

For most of the 2010s, inflation was lower than the Fed aims for and the job market was persistently weak. And for the first nine months or so of the pandemic, too-low inflation and too few jobs appeared to be the predominant economic problem. Just one year ago, in December 2020, bond market prices implied that inflation would remain below the Fed’s 2% target for years to come, and the jobless rate was still 6.7%.

Powell and the Fed organized their strategy for monetary policy around building the Fed’s credibility that it would no longer allow a persistently too-low inflation and a too-weak job market. A new “flexible average inflation targeting” strategy introduced in 2020 was built on allowing inflation to sometimes overshoot 2%.

That, in turn, helps explain why the Fed has been slow to move toward tighter money this year, even as inflation soared and the job market recovered quickly. Only this month, after year-over-year inflation reached a whopping 6.8%, did Powell undertake a clear shift toward tighter money. He signaled the Fed would speed up the end of its bond-buying program and could begin raising interest rates in the first part of 2022.

Just as Volcker was willing to allow a recession to take hold to break the high-inflation cycle of the 1970s, Powell has, until recently, emphasized that an inflationary surge that started earlier this year was likely to be temporary and that the urgency of achieving full employment was paramount.

The Powell pivot to tighter money in 2021 is the equivalent of Volcker’s 1981 move: By then Volcker was ready to relent and, in effect, declare victory, cutting interest rates and setting the stage for the economy to recover. The signs that inflationary pressures were shifting downward was sufficiently compelling that the psychology had broken.

“It was a nasty, nasty fall, but Volcker stuck the landing to the point that many parts of the macroeconomic landscape could be changed and tilted toward prosperity and markets,” said Paul McCulley, an economist and senior fellow at Cornell Law School.

What would a full reverse Reagan economy look like over the next few years?

Over the course of 2022, inflation starts to fade. Consumers shift some of their spending back toward services and away from physical goods, corporate supply chain managers figure out how to adjust to whatever changes in demand prove permanent, and demand moderates as the Fed moves toward somewhat higher interest rates and Congress does not repeat its pandemic spending binge of the first half of 2021.

But, crucially, in the best-case scenario for Biden and the Democrats, the Fed doesn’t overdo it. Just as the Volcker Fed was able to achieve a simultaneous drop in unemployment and inflation in 1983 and 1984, the Powell Fed faces the delicate task of trying to bring down inflation while not acting so aggressively as to undermine further improvement in the job market.

The goal is to achieve something of a Goldilocks scenario for the economy by late 2022. In projections released this month, for example, the median Fed leader expected an unemployment rate of a mere 3.5% and 2.6% inflation in the final months of next year, with a strong labor market and gradually receding inflation continuing through 2024.

“If the Fed, through skill and fate and luck, gets this thing settled down in the next year or two, you can make a pretty strong case that the underlying progressive agenda, which is to deal with income and wealth inequality, could actually flourish,” said McCulley.

If that were to happen, it would be an economy in which the favorable aspects of the 2021 economy — workers empowered, wages rising, and so on — persist, while the high inflation that has overwhelmed those gains in the minds of many Americans fades.

It would be no easy task to achieve. History is littered with examples of the Fed raising interest rates to rein in inflation, only to cause a recession; indeed, it was a more common pattern than not in the decades immediately following World War II. In a pessimistic scenario, the inflationary forces that have taken hold will prove sufficiently profound that they won’t go away absent a recession.

But the experience of the 1980s shows that things can get better, and that the economic and political fortunes can change faster than it might seem in a gloomy December.

It is easy to recall the 1980s as being a boom time for the United States economy — a time of gleaming excess that, among other things, powered Ronald Reagan to a landslide reelection in 1984.

It is easy to recall the 1980s as being a boom time for the United States economy — a time of gleaming excess that, among other things, powered Ronald Reagan to a landslide reelection in 1984. But the decade didn’t start out quite so sunny. And understanding the history of how the economy went from bust to boom in the early 1980s offers a surprising model for optimism about how the U.S. economy could progress in the next couple of years. All it would take is for the Federal Reserve to pull off a delicate economic pivot that is the mirror image of the one it managed four decades ago. Now, high inflation and a seemingly never-ending pandemic are depressing Americans’ attitudes about the economy. By contrast, in December 1981 — when Reagan had been president for 11 months, just as President Joe Biden has now — conditions were by most measures substantially worse. The unemployment rate was 8.5% and would keep rising throughout 1982. Inflation was 8.9%, and indexes of consumer sentiment were abysmal. In an issue of Time magazine published this month 40 years ago, if you flip past a cover story that ranks the performance of Reagan’s Cabinet and an advertisement pitching a Smith-Corona typewriter as a holiday gift for your child, you see just how bad the vibes were. “Gathering Gloom for Workers,” goes the headline, reporting that “A spreading slump swells the long gray line of the unemployed.” The article said joblessness was so high in Detroit that community leaders “fear that they are sitting on a smoldering powder keg of urban unrest.” If nothing else, this chronology is a reminder that conditions can change surprisingly quickly. By the time Reagan was reelected in 1984, the jobless rate was 7.2% and falling and inflation was down to 4.2%. Some commentators have argued that Biden has the opportunity to be an inverse of Reagan politically (much of this commentary, it should be noted, came before Sen. Joe Manchin pulled his support from the president’s signature Build Back Better bill ). And there is of course no telling what the next three years will bring politically, regardless of what happens to the economy. But in terms of the economic backdrop, it is important to understand the “why” of the Reagan economic reversal. Those gloomy unemployment numbers in Reagan’s first two years were a consequence of aggressive tightening of monetary policy by Fed Chair Paul Volcker, who was aiming to end the high inflation of the 1970s. Over the course of the previous decade, high inflation had come to seem inevitable. This led labor unions and individual workers to demand higher pay raises and made businesses willing to pay more and charge more for their products. This had settled into a vicious cycle, with deep social and political ramifications. “Inflation wasn’t just an economic problem,” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute. “It gave people the impression of a social and political breakdown, that the system was not working.” Volcker wanted to break that psychology. He did it with steep interest rate increases that, in the service of inflation control, brought the worst downturn in five decades. Across the government, including in the Reagan administration, there was a concerted focus on breaking inflation, even as the job market worsened. “What I find startling about this downturn is that so few politicians are calling for federal job training or the extension of unemployment benefits,” said Alan Greenspan, a former presidential adviser who would go on to succeed Volcker, in the 1981 Time article. “Five years ago, politicians would have been stumbling all over themselves to demand anti-recession spending.” By late 1981, there were signs it was starting to work. That same article, for example, notes that Teamsters who had managed a 31.5% pay raise in 1979 promised to be “reasonable” in the next negotiations, and that employees at major airlines had agreed to a 10% wage reduction. With this progress against inflation, Volcker was ready to relent and begin lowering interest rates. This enabled a speedy recovery from the recession, powering the Reagan boom and a period in which both unemployment and inflation were steadily falling. As the Fed chair now, Jerome Powell has until recently faced the opposite problem. For most of the 2010s, inflation was lower than the Fed aims for and the job market was persistently weak. And for the first nine months or so of the pandemic, too-low inflation and too few jobs appeared to be the predominant economic problem. Just one year ago, in December 2020, bond market prices implied that inflation would remain below the Fed’s 2% target for years to come, and the jobless rate was still 6.7%. Powell and the Fed organized their strategy for monetary policy around building the Fed’s credibility that it would no longer allow a persistently too-low inflation and a too-weak job market. A new “flexible average inflation targeting” strategy introduced in 2020 was built on allowing inflation to sometimes overshoot 2%. That, in turn, helps explain why the Fed has been slow to move toward tighter money this year, even as inflation soared and the job market recovered quickly. Only this month, after year-over-year inflation reached a whopping 6.8%, did Powell undertake a clear shift toward tighter money. He signaled the Fed would speed up the end of its bond-buying program and could begin raising interest rates in the first part of 2022. Just as Volcker was willing to allow a recession to take hold to break the high-inflation cycle of the 1970s, Powell has, until recently, emphasized that an inflationary surge that started earlier this year was likely to be temporary and that the urgency of achieving full employment was paramount. The Powell pivot to tighter money in 2021 is the equivalent of Volcker’s 1981 move: By then Volcker was ready to relent and, in effect, declare victory, cutting interest rates and setting the stage for the economy to recover. The signs that inflationary pressures were shifting downward was sufficiently compelling that the psychology had broken. “It was a nasty, nasty fall, but Volcker stuck the landing to the point that many parts of the macroeconomic landscape could be changed and tilted toward prosperity and markets,” said Paul McCulley, an economist and senior fellow at Cornell Law School. What would a full reverse Reagan economy look like over the next few years? Over the course of 2022, inflation starts to fade. Consumers shift some of their spending back toward services and away from physical goods, corporate supply chain managers figure out how to adjust to whatever changes in demand prove permanent, and demand moderates as the Fed moves toward somewhat higher interest rates and Congress does not repeat its pandemic spending binge of the first half of 2021. But, crucially, in the best-case scenario for Biden and the Democrats, the Fed doesn’t overdo it. Just as the Volcker Fed was able to achieve a simultaneous drop in unemployment and inflation in 1983 and 1984, the Powell Fed faces the delicate task of trying to bring down inflation while not acting so aggressively as to undermine further improvement in the job market. The goal is to achieve something of a Goldilocks scenario for the economy by late 2022. In projections released this month, for example, the median Fed leader expected an unemployment rate of a mere 3.5% and 2.6% inflation in the final months of next year, with a strong labor market and gradually receding inflation continuing through 2024. “If the Fed, through skill and fate and luck, gets this thing settled down in the next year or two, you can make a pretty strong case that the underlying progressive agenda, which is to deal with income and wealth inequality, could actually flourish,” said McCulley. If that were to happen, it would be an economy in which the favorable aspects of the 2021 economy — workers empowered, wages rising, and so on — persist, while the high inflation that has overwhelmed those gains in the minds of many Americans fades. It would be no easy task to achieve. History is littered with examples of the Fed raising interest rates to rein in inflation, only to cause a recession; indeed, it was a more common pattern than not in the decades immediately following World War II. In a pessimistic scenario, the inflationary forces that have taken hold will prove sufficiently profound that they won’t go away absent a recession. But the experience of the 1980s shows that things can get better, and that the economic and political fortunes can change faster than it might seem in a gloomy December.

How the 2020s economy could resemble the 1980s

The United States Federal Reserve said that it would end its pandemic-era bond purchases in March and pave the way for three quarter-percentage-point interest rate hikes by the end of 2022 as the economy nears full employment and the US central bank copes with a surge of inflation.

US Federal Reserve signals three rate hikes in 2022 as inflation fight begins

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