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The Federal Reserve prepares a new rise in interest rates. How it can affect you

2022-05-04T13:45:02.840Z


This measure will make loans to buy a car or a house, and credit card payments more expensive. It could cool inflation, but at the risk of causing a recession.


The Federal Reserve is preparing a new rise in interest rates that could reach an increase of half a percentage point this Wednesday, the highest rise in 22 years, to combat inflation. 

This increase would have consequences for consumers:

it would make loans to buy a car or a house,

and

credit card payments more expensive.

That would aggravate the financial difficulties of citizens, although it could put a stop to the uncontrolled rise in prices that are now damaging households.

The Federal Reserve (known as the Fed) raised rates by a quarter of a percentage point in March, the first increase in three years, due to the impact of inflation, which was aggravated by the Russian invasion of Ukraine and the increase in COVID-19 infections. 19 in China.

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Inflation has continued to rise since then: in March it again hit a 40-year high, rising 8.5% from the same month a year earlier.

That seems to have convinced the Federal Reserve to act more aggressively, with a half-point increase to curb household and business spending and cool inflation, although experts and financial markets point out that this entails a risk of falling into recession.

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The Federal Reserve is also expected to announce on Wednesday that it will

begin rapidly drawing down its vast holdings of Treasury

and mortgage bonds beginning in June, a move that will have the effect of further tightening credit.

It could thus begin to reduce its balance of nearly nine billion dollars at a rate of 95,000 million a month, according to CNBC.

The president of the Fed, Jerome Powell, however, is facing a very complex situation due to international instability and the effects of the pandemic in China: despite the apparent strength of the US economy, the gross domestic product registered a fall in the first quarter of the year.

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“They don't know what obstacles they're going to run into,” Diane Swonk, an economist at consulting firm Grant Thornton, told The Associated Press news agency.

“I compare it to driving in reverse while using the rearview mirror,” she added.

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Experts forecast that the Fed will approve another half-point rate hike in June, and more hikes in July and the following months.

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Many economists, however, believe that he is acting too late.

Even when inflation has skyrocketed, the benchmark interest rate is in a range of 0.25% to 0.5%, low enough to stimulate growth and in negative territory when accounting for inflation.

Source: telemundo

All news articles on 2022-05-04

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