As the US Federal Reserve raises interest rates, fears of a deepening recession in the country are coming true.
The US Federal Reserve raised its policy rate by 75 basis points. The interest rate hike on Wednesday raised interest rates from 1.5% to 1.75%.
This is seen as the most economically important decision in the United States since 1994. Economists say the sharp rise in interest rates has intensified the country’s war on inflation.
The biggest increase in Federal Reserve interest rates since 1994 has come on the back of lower consumer spending. Economists see this as a recession in the United States.
Fearing that inflation will have a further impact on the economy, the US Federal Reserve is taking more drastic measures to mitigate its effects. But the chances are slim, according to Moody’s Analytics.
The US economy is now slowing down to below 1.7% growth this year. Moreover, unemployment has risen to 3.7% and continues to rise. It is also feared that it will rise to 4.1% by 2024.
While the US economy is not forecast to reach a complete recession, the fact that the range of economic growth forecasts has moved to zero in 2023 is a sign of danger.
US inflation is the highest in 40 years. Inflation is projected to remain at 5.2% this year and gradually rise to 2.2% in 2024, according to the Index of Personal Consumption Expenditure, even after the most drastic interest rate measures taken on Wednesday.
It’s important to note that Ryan Sweet, head of monetary policy research at Moody’s Analytics, said:
“Growth is slowing and tightening of financial market conditions. The effect of the removal of monetary policy will take time to have an impact on the economy,” he said.
U.S. retail sales fell the most in May. Following this, the Federal Reserve Bank of Atlanta cut its second-quarter growth estimate to 0%. Some economists are also concerned that the United States may already be in recession, given the slowdown in consumer spending.
Sri Lanka is already bankrupt. With Pakistan currently on the brink of economic collapse, the United States is also gripped by inflation, raising concerns internationally.