Federal Reserve’s Semi-Annual Monetary Policy Report Shows Strong Need to Raise Interest Rates

03/04/2023 16:11 • Metaverse & Beyond • 82 views

It is reported that the Federal Reserve’s semi-annual monetary policy report shows that the financial situation has been further tightened since June, significantly tighter than a year ago; It is necessary to continuously raise the target of federal funds interest rate; Remain firmly committed to bringing the inflation rate back to 2%; The market liquidity of US treasury bond bonds and other major markets is still lower than the pre epidemic level; To return the inflation rate to 2%, it may take a period of below-trend growth and the weakening of the labor market; Expectations show that high inflation has not become entrenched; The labor market is still extremely tense. Compared with the expected level before the epidemic, the labor supply is seriously insufficient.

The Federal Reserve’s semi-annual monetary policy report: it is necessary to continuously raise the target of the federal funds interest rate

Interpretation of the news:

The Federal Reserve’s semi-annual monetary policy report has shown that the financial situation has significantly tightened since June and is tighter than it was a year ago. As per the report, there is a strong need to continuously raise the target of federal funds interest rate to bring the inflation rate back to 2%. This move is necessary to ensure the proper functioning of financial markets and to maintain price stability.

The report also suggests that even though the market liquidity of US treasury bond bonds and other major markets has recovered, it is still lower than the pre-epidemic level. To return the inflation rate to 2%, it may take a period of below-trend growth and weakening of the labor market. The report suggests that high inflation has not become entrenched yet, but warns that the labor market is still extremely tense.

The current situation could be attributed to the shortage of labor supply. The labor supply is seriously insufficient and is far from the expected level before the epidemic. As the demand for labor has increased, businesses are struggling to find skilled workers as well as seasonal workers for the holiday season. This shortage has resulted in an increase of wage rates, which may further fuel inflation if not controlled.

In conclusion, the Federal Reserve’s semi-annual monetary policy report shows that the current situation demands a continuous increase in federal funds interest rates to maintain financial stability and price stability. The report also cautions that it may take time to bring back the inflation rate to 2%, which could result in below-trend growth and labor market weakening. Policymakers must find a balance between controlling inflation and encouraging economic growth by addressing the shortage of labor supply.

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