Higher interest rates could cause a recession
Higher interest rates could cause a recession

Higher interest rates could cause a recession

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To be sure, the need to contain inflation by raising interest rates could lead to a recession in the US. recognized by the Chairman of the Federal Reserve, Jerome Powell, in the first two days of congressional hearings. “We try not to cause a recession and we don’t think it’s necessary to go that far, but we think it is absolutely necessary” to slow inflation, the US central bank chief explained. Consumer price growth in the US has not reached levels it has never reached in the past 40 years, driven primarily by the sharp increase in demand, the expansion of the labor market and the fiscal stimulus policies launched by the government during the COVID-19 pandemic. Recently, inflation has also been fueled by the fallout from the war in Ukraine, a sharp rise in fuel prices on international markets, and problems in global distribution chains.

And the Federal Reserve raised, last week, interest rates by 0.75 percent, as it had not done in the past twenty years, and announced that it is ready to repeat the step again next July if necessary. Powell explained that the central bank’s goal is to cool economic growth to contain inflation, but without causing a recession. The events of the last few months in the world have made it difficult for us to achieve the set goals. “But we didn’t say it was going to be easy,” Powell told the Senate Banking Committee. As was already expected by the national press, the Fed chief made it clear that the US central bank will continue to raise interest rates until it “sees clear signs of inflation decelerating toward the 2 per cent target”.

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