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Interest Rates Rises To 22-Year High

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Today’s News

Back to the skies, goes the Federal Reserve as it resumed its rising interest rates and Chair Jerome Powell left the possibility open for further hikes, which he emphasized will be highly dependent on incoming data that has recently signaled a resilient U.S. economy in the near future.

After pausing rate increases in June, policymakers were cornered to lift borrowing costs again at their policy meeting yesterday for the 11th time since March of the previous year to curb inflation. The quarter percentage-point hike alongside a unanimous decision boosted the target range for the Fed’s benchmark federal fund rate to 5.25% to 5.5% respectively, the highest level in 22 years.

While Powell pointed to encouraging signs that the Fed’s rate hikes are working to curb price pressures, he reiterated that policymakers have a long way to go to return inflation to their 2% goal. The Fed chief refused to be pinned down when officials may hike again, citing a raft of economic reports due before the Fed’s next meeting in September, including two job reports, two reports on consumer-price inflation and data on employment costs.

Other related news include:

U.S. Economy Averts Recession At All Costs

The U.S. economy is doing everything in its power to avoid slipping into a recession as higher interest rates and a pickup in unemployment weighs in on consumers, fresh Congressional Budget Office (CBO) estimates show.

Source: CNN

Gross domestic product is projected to rise at a 0.4% annual rate in the second half of this year, before steadily improving in 2024 and into the following year, according to the CBO, despite some buckling in consumer spending over the remainder of this year because of higher borrowing costs and pandemic-themed savings.

3 Key Takeaways From July Decision

Federal Reserve Chair Jerome Powell still believes the Fed can achieve what’s known as a “soft landing.”

Source: Bloomberg

Recession Not In The Cards

That would mean that the central bank could get inflation down to its 2% target causing minimal damage to the economy. That’s generally been difficult because the higher interest rates go, the higher the unemployment rate goes, which increases the likelihood of a recession.

No Rate Cuts In Sight

It could happen next year if inflation stays consistently near the Fed’s target, Powell said, but that’s a big if. “There’s a lot of uncertainty between what happens with the next meeting cycle, let alone the next year.”

GDP And Spending Data

On the spending front, the latest retail data shows that spending is continuing to grow, albeit at a slower pace than in prior months. First-quarter GDP data shows that the economy is still expanding despite the risks of a downturn.

Asia Stocks Pick Up After Mighty Dollar Goes Down

The dollar fell and Asia stocks gained on growing speculation the Federal Reserve is close to the end of its tightening cycle after the central bank said any further tightening would be data dependent.

Source: Bloomberg

The commodity-driven New Zealand and Australian dollars strengthened the most against the greenback as traders trimmed bets on further Fed interest-rate increases this year. Major equity indexes advanced across the region, with Hong Kong-listed technology stocks leading gains.

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