Interest rate decision. What is a Hawkish comment?
You just want to be right all the time…
Every time that largest economy in the world does something, it affects other smaller countries. For example, the decision about their interest rate. Sometimes they say the outlook looks great, so in order to control inflation, they must continue to increase the rates. Yet, at the same time, they will also say something not so positive such as people not able to find a job when they lose theirs. So, if rates are increased higher, this will impact these retrenched people as they will be pressured with higher loan repayments. So, what’s going to happen then?
Article in malaymail.com US stocks opened higher after falling the previous day on the back of Federal Reserve Chair Jerome Powell saying that the US central bank “will not hesitate” to raise interest rates again if necessary.
Powell told an International Monetary Fund conference Thursday that progress toward reaching two-per cent inflation was “not assured”.
“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he said.
He added that officials were aware of the need not to overtighten, which many fear could tip the world’s top economy into recession. Do read the full article here: Article in malaymail.com
Notice the few sentences in the article?
On one hand, ready to increase interest rate if necessary. At the other end, they are aware that too tight (means too high interest rate) will push the largest economy into a recession. What is a recession?
“A recession is a significant, widespread, and prolonged downturn in economic activity. A common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth mean recession, although more complex formulas are also used.” Source: investopedia.com
So, it’s now a battle between inflation versus recession yeah. If inflation rises (meaning general prices all go up due to higher demand), then interest rate will rise. (so that people would not use so much of their money) When interest rate rises, then the demand will cool and inflation will be under control.
Meanwhile no one likes a recession yeah. So there you have it. What’s the actual action? Haha. Happy guessing.
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