iifl-logo-icon 1

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

  • Open Demat with exclusive Advice & Services
  • Get a dedicated Relationship Manager to help you grow your wealth
  • Exclusive advisory on 20+ trading & wealth-based investment options
  • One tap Investments, Automated trading & much more
  • Minimum 1 lakh margin required
sidebar image

What does the latest interest rate hike by US Federal Reserve mean?

15 Dec 2022 , 09:20 AM

US Federal Reserve ,yesterday , raised interest rate by another 50 basis points or 0.5%. The latest interest rate hike is less than .75% hikes that were announced in the past four instances of interest rate hike this year. After this increase, the benchmark federal funds rate in US now stands at between 4.25% - 4.5%.  This is the highest level of federal funds rate in more than one decade. Federal Funds Rate is the rate that banks charge for overnight lending to other banks. 

US Federal Reserve Chairman said that in  the upcoming meeting of Federal Reserve on 1st February, it may go for a lower interest rate hike of 25 basis points or 0.25%. Federal Reserve also said that federal funds rate is expected to be increased to 5% - 5.5% by the end of 2023. This means that it is planning to raise interest rate by another 1% point at least, over the next 12 months.

In spite of four interest rate hikes, besides the most latest one, US Federal Reserve has achieved very little success, if any, in controlling inflation. Consumer price inflation in November slowed down marginally to 7.1% in November, from 7.7% rate in October. This is still significantly higher than Federal Reserve's target of 2%.

The Central Bank again asserted yesterday that it will maintain its target inflation rate at 2%. If after so many interest rate hikes, inflation has come down so marginally, what is the quantum of interest rate hikes the Federal Reserve will have to make to bring it down to 2%? The answer is clear. US Central Bank is banking on bringing a sharp recession in the US economy. This recession will slow down demand in the economy to such an extent that inflation starts plummeting down on its own. But in this calculation it is ignoring one major factor. The current spike in inflation rate in US is caused by supply chain disruptions caused by two years of Covid lockdowns and disruptions. It has Not been caused by spike in demand. So increasing interest rates may end up bringing a situation of both economic recession and high inflation. 

The latest increase in federal funds rate will increase mortgage loan interest rates and other interest rates in the US economy further. Housing market has already entered into a sharp slowdown because of increase in rates on mortgage loans. More interest sensitive items of consumption and investment are going to see decline in demand in the coming months. A decline in demand in US will further aggravate the global economic slowdown. 

Related Tags

  • BSE
  • nifty
  • NSE
  • sensex
sidebar mobile


Read More
Knowledge Centerplus

Logo IIFL Customer Care Number
1860-267-3000 / 7039-050-000

Logo IIFL Securities Support WhatsApp Number
+91 9892691696

Download The App Now

Knowledge Centerplus

Follow us on


2024, IIFL Securities Ltd. All Rights Reserved

  • Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
  • KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
  • No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.

  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to Rs. 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.

Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.


Get better recommendations & make better investments

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp