Dear MEL Topic Readers,
The strange reason America's economy is shrinking
The U.S. Federal Reserve Bank raised interest rates by a staggering 0.75 percentage points on July 27 for the second consecutive time to fight inflation, taking its benchmark rate to a range of 2.25%-2.5%. While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans, and credit cards. The FRB believes that job gains have been robust in recent months and the unemployment rate has remained low. They think higher prices for food and energy especially are causing broader price pressures on businesses and consumers. In the meantime, the US gross domestic product for the second quarter fell at an annual rate of 0.9% after a 1.6% fall in the previous quarter. You may wonder if the US is under both inflation and recession. Some analysts say that the business inventory level is too high for healthy economic growth. Indeed, when there are too many unsold goods and materials, new orders are going to be withheld or they are sold at discounted prices, which would slash their profits. Also, a rate hike leads to higher mortgage payments, which would reduce consumer spending.
It seems that the current US economy is in a very difficult situation to manage. Can the central bank navigate under this heavy storm safely?
Enjoy reading the article and learning about the US economy and inflation.
https://edition.cnn.com/2022/07/29/investing/premarket-stocks-trading/index.html
The strange reason America's economy is shrinking
The U.S. Federal Reserve Bank raised interest rates by a staggering 0.75 percentage points on July 27 for the second consecutive time to fight inflation, taking its benchmark rate to a range of 2.25%-2.5%. While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans, and credit cards. The FRB believes that job gains have been robust in recent months and the unemployment rate has remained low. They think higher prices for food and energy especially are causing broader price pressures on businesses and consumers. In the meantime, the US gross domestic product for the second quarter fell at an annual rate of 0.9% after a 1.6% fall in the previous quarter. You may wonder if the US is under both inflation and recession. Some analysts say that the business inventory level is too high for healthy economic growth. Indeed, when there are too many unsold goods and materials, new orders are going to be withheld or they are sold at discounted prices, which would slash their profits. Also, a rate hike leads to higher mortgage payments, which would reduce consumer spending.
It seems that the current US economy is in a very difficult situation to manage. Can the central bank navigate under this heavy storm safely?
Enjoy reading the article and learning about the US economy and inflation.
https://edition.cnn.com/2022/07/29/investing/premarket-stocks-trading/index.html
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