The Federal Reserve yesterday also said that another interest rate hike between 0.5% and .75% is expected next month. Given the current high rate of inflation, it is very likely that these hikes will continue till December at least. After July, Federal Reserve may go for three more hikes of .25% till December. That is likely to push Federal Funds Rate to 3.2%.
In its report yesterday, the Federal Reserve identified three main causes of high US inflation – 1) Demand and supply disuptions caused by Covid lockdowns and restrictions; 2) higher energy prices; 3) broader price pressure.
With these interest rate hikes, US economy is all set to enter a slowdown. There is a good chance that US economy may enter recession. Recession happens when GDP growth turns negative and the economy starts contracting. US is the biggest importer of goods and services from a large number of countries. Slowdown or Recession in US will bring down US imports from these countries. This will have an adverse impact on the economy of these countries. Overall it can be said that the slowdown in the entire global economy is set to worsen further in the coming days because of worsening economic situation in US.
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