Wednesday afternoon, the Federal Reserve raised its key federal fund rate by three-quarters of a point. The Dow fell more than 500 points as a result.
This central bank decision indicated that officials value a cooling of cost pressures, even though there are still high inflation rates and the possibility of a drop in economic activity.
Recent indicators show a slight increase in production, spending, and consumption. According to the Federal Reserve Board of Governors, inflation is still high due to supply-demand imbalances that result from the pandemic and higher food and energy prices.
Stocks, which had been up earlier in the day, closed down sharply, with the Dow dropping 522 points or 1.7%, and the tech-heavy NASDAQ falling 205 points or 1.8%.
Officials announced an increase in interest rates of 0.75% in June and July. Officials announced an increase in interest rates of 0.75% for June and July to lower inflation and increase the cost to borrow money for consumers and businesses.
According to Bureau of Labor Statistics data, prices increased 8.3% between August 2021 and August 2022. This is a slight decline from the 8.5% year-over-year increase in July and 9.1% in June.
He stated that high inflation is most detrimental to the poorest.
Powell stated that inflation was a result of rising prices in the 1970s and 1980s. This taught Powell that the Federal Reserve could and should deliver stable and low inflation, even though other developed countries are also experiencing it.
Americans are expecting lower inflation over the medium and short-term due to aggressive rate rises. According to the Federal Reserve Bank of New York data, the median one-year and three-year inflation expectations fell sharply from 6.2% to 3.2% in July.
Despite the August core inflation increase, President Joe Biden said in a statement that “essentially” flat prices were a sign of his economic agenda.
According to the commander-in-chief, it would require more effort and more time to lower inflation. The Inflation Reduction Act was created to reduce healthcare and prescription drug costs.
The European Union is facing an energy crisis, which has forced many European factories to shut down production. Since Russia invaded Ukraine earlier this year, the United States has seen energy prices rapidly rise.