Rise in interest rates can jolt US economy, warns chief of Federal Reserves

Washington: Following the increase in interest rates, the US Federal Reserve is planning another increase in the interest rate in the current year. Jerome Powell, Chief of Federal Reserve, warned that the new rise in the interest rate could deliver jolts to the US economy. Powell warned not to be under the impression that the US economy will ‘Soft Land’ following the interest rate hike. Mixed reactions were received from the US industry and stock markets regarding the interest rate increase by the Federal Reserve. The fresh warning by Powell become significant against this background.

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Currently, inflation is raging in the United States and the effects are becoming apparent in the US economy. The inflation index in the United States has reached 7.9% and this is the highest increase in the last four decades. The inflation index had not declined even once since Biden took over the reins of the United States. There has been a consistent increase in inflation in the last 14 months since November 2020. The issues created in the global supply chain given the Coronavirus pandemic, increase in the prices of Steel and fuels and shortage of workforce are the contributing factors for the increasing inflation in the United States.

The Federal Reserve had indicated to increase the interest rates to control inflation. Accordingly, the interest rates in the United States were increased by 0.25% in the last week. This is the first increase in interest rates in the last three years. This will make loans dearer, which could impact the US population’s purchasing power. There is a possibility of the demand falling and, in effect, the decline in the GDP. Analysts and economists have warned that this could culminate in an economic recession.

The statements of Jerome Powell, the chief of Federal Reserve, are pointing to the same thing. Powell has predicted an interest rate hike six times in the coming year, after the last week’s increase. In that case, the interest rates in the United States could cross 2%. This will be a major shock for the US population and could collapse their budgets. The warning also has been issued that the United States may also face an economic recession crisis. US economy going into recession will have major repercussions on the global economy.

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