Federal Open Market Committee (FOMC) of the US Federal Reserve will meet on Wednesday and announce new monetary policy decisions against the backdrop of high inflation in the economy of the United States of America.
FOMC of the Federal Reserve is the body that decides upon major monetary policy measures to be undertaken by the central bank in order to stabilize the economic situation in the country.
With high inflation in the economy and the continuing crisis in the labor markets, Federal Open Market Committee is expected to hike the benchmark interest rate by at least 75 basis points. Market analysts and economists believe that the central bank will continue to follow an aggressive rate hike policy as past interest rate hikes have not been that effective in addressing the inflation crisis in the economy.
By implementing interest rate hikes, Federal Reserve is planning to reduce cash flow in the economy which will in turn reduce demand and hence bring down inflation in the country. The risky element in hiking interest rates is that it might push the domestic economy into a recession which will be hard to live by.
As a precursor to the meeting of FOMC, major stock exchanges in the USA closed its markets on Tuesday in red as investors are bracing themselves for strict monetary policy measures from the central bank. The Dow Jones Industrial Average fell 79.75 points, or 0.24%, to 32,653.20, while the S&P 500 slid 0.41% to 3,856.10. The Nasdaq Composite shed 0.89% to 10,890.85.
As of now, Federal Reserve is planning to achieve a ‘soft landing’ for the economy in which inflation is to be brought down under the 2 percent target without triggering a recession in the domestic economy. Various economists and market analysts have pointed out the inefficiency of the plan as time for such a ‘soft landing’ have already passed.
High inflation induced by increased energy prices and the global supply chain crisis has impacted the economy of the United States in a severe manner. Prices of essential commodities skyrocketed in the domestic economy forcing citizens to spend more on food, energy, and such another essential items.