The Federal Reserve Higher Interest Rates and the Looming Long-Term Recession FED
Despite market fears, uncertainty, and an unstable financial sector, the U.S. Federal Reserve remains committed to its aggressive monetary policy.
Also on Wednesday, May 3, the Bank of Canada announced its third consecutive interbank rate hike for this year.
Once again, the Fed officials decided to do something about inflation, even if that meant increasing market uncertainty and volatility.
Today’s video delves into the potential repercussions of higher interest rates on the economic system.
While interest rate hikes are often implemented with good intentions, it’s crucial to understand the potential negative impact they can have.
Since March 2022, there have been 10 consecutive interest rate hikes, the longest interest rate hike series in U.S. history.
As interest rates rise, borrowing becomes more expensive for businesses and consumers alike.
This, in turn, leads to reduced spending, investment, and consumption.
In normal conditions, the theory of continuously raising key interest rates might work to tame inflation and cool prices.
Yet, there has been nothing normal since the Pandemic outbreak.
Energy prices, food prices, and consumer prices skyrocketed to records, the highest record in the past half-century.
On top of that, the global supply chain and oil production had declined to a critical level due to the still-ongoing war between Russia and Ukraine.
For the first time since the 1960s, inflation has surpassed 9% in over half the nations in the world.
The challenges are big, and the risk is even greater, particularly after the second-largest financial crisis in U.S. history.
After the Silicon Valley bank failure and the First Republic Bank’s weakness, investors hoped for an interest rate pause.
So, how will they affect the financial system?
For starters, the economic engine begins to slow down, and a sense of caution starts to pervade the market.
A failing banking system can exacerbate the impact of interest rate hikes.
If banks are facing financial instability or insolvency, they may tighten lending practices and become more cautious when providing credit.
👉 If you liked this video, be sure to watch: OPEC Cuts Production Oil By Surprise Rise Prices.