Rising Inflation and Interest Rate Hikes: The Magic of the 2% Target Rate of Inflation

In the past year, the Federal Reserve Bank has aggressively raised interest rates in response to high inflation, which peaked at 9.1% last year but has since reduced to 3% year-over-year in June 2023. This proactive approach, aimed at achieving the Fed’s target inflation rate of 2%, has led to higher interest rates for consumer loans, mortgages, and credit cards, with some banks failing and a decrease in job openings. As the U.S. experiences its highest interest rates in 22 years, debates among experts intensify, with some advocating for a higher inflation target of 3% or 4% to maintain economic stability and low unemployment, while others emphasize the need to continue rate hikes until the 2% target is assuredly on track. The financial community awaits the Fed’s next move as they navigate the delicate balance of price stability and economic growth.



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