In observance of the Holy Week, the Philippine News Agency’s online news service will be off on March 29, Good Friday, and March 30, Black Saturday. Normal operations will resume on March 31, Easter Sunday.

— The Editors

Expert: Fed's move to hike rates 'disappointing'

ISTANBUL -- The United States Federal Reserve raising interest rates once again despite the banking crisis is "disappointing," according to the chief economist at Moody's Analytics.

"The quarter percentage point rate hike won't be what breaks things, but it shows the Fed's willingness to take that chance to get inflation down more quickly," Mark Zandi said in an email interview with Anadolu.

Despite four US banks facing serious financial turmoil last week, the Fed raised its benchmark interest rate Wednesday by another 25 basis points, carrying the federal funds rate to between 4.75 percent and 5 percent –the highest since May 2006.

This marked the second 25-basis-point rate hike this year, followed by a 50-point hike in December after four consecutive interest rate increases of 75 points during the second half of last year.

"It's unnecessary," Zandi said. "Growth is slowing and with banks sure to aggressively tighten their lending standards due to their recent scare, growth will slow substantially more. Inflation is also moderating, and this will continue given low oil prices, weak rents and slower wage gains."

Inflation has been substantially down in the world's biggest economy, but the Fed says it is still far above its target of 2 percent.

Annual consumer inflation in the US came in at 6 percent in February, easing from 6.4 percent in January. The figure was the smallest 12-month increase since the period ending September 2021.

This is also a massive decline from last June's 9.1 percent yearly gain, which was the largest since November 1981.

The record-high inflation in the US and around the world was a combination of several factors.

Supply-chain issues during the coronavirus disease 2019 (Covid-19) pandemic, the growing imbalance between inadequate supply and rising global demand in the post-pandemic era, have all played their role.

Russia's war on Ukraine, which started a year ago, just added fuel to the fire – causing a surge in oil and food prices, throwing both industries off balance.

Another major cause behind high inflation, however, involved the Fed injecting an unprecedented $5 trillion into the economy during the pandemic.

Too much money in the system, of course, brought up prices and caused inflation climbing up gradually.

Jerome Powell, the Fed chair, had long argued in the second half of 2021 that high inflation was "transitory" and it would soon dissipate.

He, however, admitted in the final months of the same year that prices are too high and the central bank would soon take action to take climbing inflation under control.

Although being too late, the Fed's first step later turned out to be a giant leap for its monetary policy endeavor. It as well influenced most other central banks across the world.

The central bank's first rate hike in March 2022 was only the initial step in a relentless series of rate hikes. It made a total of 425-point interest rate increases on seven occasions last year.

"The Fed got it wrong when they kept rates too low too long coming out of the pandemic," said Zandi. "It's unfair to be too critical given the uncertainties created by the pandemic."

The expert said Russia's war on Ukraine also played a role when oil prices jumped to their highest levels in around two decades early 2022 when the war started.

Zandi said the Fed "now risks raising rates too high too fast."

Too much monetary tightening, indeed, has lowered the amount of liquidity in both the US and global economy too fast.

The strong and rapid rate hikes have left less breathing room for new capital in global markets.

This is especially true for manufacturing industries around the world, which desperately need new investment to boost low supply to urgently catch up with high global demand fast to bring inflation down. (Anadolu)

 

Comments