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Federal Reserve plans to raise interest rates as soon as March to cool inflation – San Bernardino Sun

WASHINGTON – The Federal Reserve signaled Wednesday that it plans to begin raising its benchmark interest rate as early as March, a key step in reversing the pandemic-era low-rate policies that have spurred a pandemic. boost hiring and growth but also escalate inflation.

With high inflation hitting consumers and businesses and unemployment steadily falling, the Fed also said it would phase out monthly bond purchases, which are intended to lower long-term interest rates. in March.

The Fed’s actions are certain to make a range of loans – from mortgages and credit cards to auto loans and business credit – more expensive over time. As a result, higher borrowing costs can slow consumer spending and hiring. The biggest risk is that the Fed’s abandonment of low interest rates could trigger another recession.

The central bank’s latest policy statement comes after dizzying volatility in the stock market as investors fear and uncertainty about the Fed’s reversal of low-interest rate policies, which have nurture the economy and the market for many years. . The broad S&P 500 index has fallen nearly 10% this month before recovering slightly on Wednesday.

High inflation has also become a serious political threat to President Joe Biden and congressional Democrats, with Republicans seeing rising prices as one of their attacks. their main office as they head towards the November elections.

However, last week, Biden said it was “appropriate” for Chairman Jerome Powell to adjust Fed policies. And Republicans approved of Powell’s rate hike plan, providing the Fed with rare bipartisan support for credit tightening.

A separate potential source of higher interest rates is the Fed’s plan for its bond holdings, at a record high of nearly $9 trillion. The purchase of bonds, which are financed by the Fed by creating money, is aimed at lowering long-term interest rates to spur borrowing and spending. Many investors also see bond buying as boosting the stock market by pouring cash into the financial system.

Earlier this month, minutes from the Fed’s December meeting revealed that the central bank was considering reducing its bond holdings by not replacing maturing bonds – a more positive step than just ending purchases. . The impact of the reduction in the Fed’s bond stockpile is not well known. But the last time the Fed raised interest rates and slashed its balance sheet was in 2018. The S&P 500 stock index fell 20% in three months.

https://www.sbsun.com/2022/01/26/federal-reserve-plans-to-raise-interest-rates-as-soon-as-march-to-cool-inflation/ Federal Reserve plans to raise interest rates as soon as March to cool inflation – San Bernardino Sun

Tom Vazquez

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