Stocks Rise After Fed Takes Historic Action on Inflation

The Federal Reserve has taken historic action to combat the rising price of goods and services. In the process, it hopes to make borrowing more expensive and thereby bring inflation down. Fed chair Powell says there will be another hike next month. Inflation hit 8.6 percent in May, its highest level in 40 years. Concerns about inflation have spooked stock markets. However, two BU experts weigh in on the issue.

Markets are optimistic about the Federal Reserve’s ability to tamp down inflation

Many economists have expected the Fed to raise interest rates by a quarter-point this week. It already has hiked rates by a half-point in May, and signaled it would continue to raise rates in June and July. The news comes after a string of bad inflation news in recent days. Last month, the Consumer Price Index surged 8.6 percent from a year ago, the fastest growth since late 1981.

The US Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures measure, is rising a bit slower than analysts had expected. Yet, it’s still far too high. As a result, consumers are beginning to anticipate higher prices in the months ahead. Some economists believe expectations can be self-fulfilling. However, one voting member, Esther George, did not support the hike, citing concerns that higher interest rates could drive the economy into recession.

Wall Street has criticized the central bank’s actions on inflation

The Federal Reserve has received a lot of criticism for its monetary policies, and some say the central bank has gone too far in inflating the economy. However, critics argue that the central bank is simply fighting a losing battle. Inflation was relatively low during the last recession, and recovery from the global financial crisis was subdued. As a result, many say that the Fed should focus on price stability rather than inflation.

The Federal Reserve is charged with keeping the country’s economy healthy and prices stable. However, there are some economists who say that the Fed’s policies are risking inflation and asset bubbles, and some feel that the Fed is favoring financial markets over workers. Despite this criticism, the Federal Reserve is a politically independent government agency, and the actions of the Fed have created tension between the central bank and politicians.

Money supply drives inflation

The stock market isn’t going to be satisfied until the Federal Reserve does something drastic to combat inflation. The average investor predicts the Fed will raise rates by three-quarters of a percentage point this week. lån til oppussing happened was in 1994 when Greenspan was chairman. In May, Jerome Powell raised rates by half a percentage point and promised to keep raising them until inflation is under control. Afterward, he said that the rate hikes would resume at the same rate.

The S&P 500 Index closed the year near record highs, but has fallen back compared to riskier investments. The Dow Jones Industrial Average and Nasdaq Composite have been in a similar situation. The Fed’s stance on interest rates has also led to a rise in interest rates, which could push stocks higher. The economy may not be experiencing a recession as expected, but it’s likely to remain low.