New York (CNN Business):- Federal Reserve is adopting all the possible efforts to combat with the plight of inflation arising due to epoch of free money during Covid. In order to normalize the situation, Fed officials has raised the interest rates by half percent on Wednesday which is one of the major shift in 22 years. The liking trend of interest uplift is based on quarter percentage point in March with its start up since 2018.
The increasing trend is showing positive results as the market is growing continuously from zero to high level. However, the ratio in which the interest rate is increased is not adequate to meet with the growing cost of living.
High Inflation: The results depicted by the consumer price index are not favorable as the prices in March are on the top since 40 years indicating the need to raise the interest rate multiple times for the coming months. The general natives of USA will face this situation through experiencing borrowing at top rates. It will not be less than a challenge to raise funds or car loan at an appropriate rates. People will not get much for their deposits in the banks.
Joe Brusuelas, chief economist at RSM US has a statement that “Money will no more be free” Also, it is believed that after the complete eradication of pandemic, Fed will make borrowing easy to general public as well as industrialists and households in order to encourage spending resulting in the increase in the level of economy. At the same time,, officials of Central Bank come up on a decision to print trillions of dollars to uplift economy through a program called as quantitative easing. Fed strives all the possible efforts to regulate and maintain financial stability in the market.
Even, inflation is on its peak in US, but unemployment is still at a low of past 50 years.
Rising Borrowing Cost: Borrowing is getting much costly as evert time increment in interest is occurring due to which mortgages, credit cards, student debt and car loans are getting expensive. On April 28th, a 30 year fixed rate mortgage stand at 5.1% which is uplift by 3% in November. As per the opinion given by National Association of Realtors, the average price of a already built house goes up by 15% totaling around $375300.
Phenomenon of Price Up : There is a perception in the investors mind that the Fed will raise 3% in order to stable its balance by the end of the year. In this way, the borrowing cost in future will depend upon the policy of Fed.
One thing proved good signal for savers is that it will boost the earning of savers in the form of high interest rates.
Cooler Inflation: The main goal behind the interest hike by Fed is to maintain stability in economy such as to bring inflation under control and recovery of jobs. The noticeable hike of 8.5% in March is maximum since December 1981.
Due to it, all the necessary items are costly such as food, oil, etc., Also, it is creating trouble for millions of Americans in the form of financial disturbances.
Still, the policy used by Fed will neutralize the situation after some time.