NEW YORK–The rate hike announced by the Federal Reserve this week will slow down U.S. economic growth to 2.3% in 2022, according to an analysis by GlobalData.
As CUToday.info reported here, the Fed bumped up its benchmark rate by 75 basis points.
“From January to June 2022, the U.S. Federal Reserve increased the key policy rate by 150 basis points,” noted GlobalData.
The latest increase has led GlobalData to revise its predictions downward to 2.3% for July 2022, which is down from 3.6% in February 2022.
The company further forecast that the impact of the ongoing Russia-Ukraine war will keep the inflation rate at elevated levels. Accordingly, it said it has revised its 2022 inflation rate forecast for the U.S. upward to 7.7% in July 2022, from 4.9% in February 2022.
‘High Borrowing Costs’
GlobalData further noted the U.S. inflation rate rose to 9.1% in June 2022, up from 8.6% in May 2022, the highest level recorded since November 1981 and well above the Fed’s target of 2%.
“As a result of the Federal Reserve deciding on whether there will be any further rate hikes, the U.S. economy is expected to experience high borrowing costs for mortgages, credit cards, student debt, and car loans,” said Bindi Patel, economic research analyst at GlobalData. “Moreover, business loans are only expected to get more expensive.”
GlobalData said the rising prices has shifted consumer behavior towards replacing discretionary items like electronics and apparel with essential items including food and fuel. The change in consumer behavior is expected to impact the market dynamics and slow down activities in various sectors due to reduced demand, the company’s analysis added.
‘Downside Risk’
“If the inflation levels continue to rise and the Federal reserve undertakes an aggressive monetary policy stance, there is a downside risk that the U.S. economy is likely to experience a recession in the coming months,” said Patel. “Moreover, stock markets are likely to experience high levels of volatility especially within emerging and developing economies, as they continue to grapple with a continuous depreciation of local currency alongside high levels of inflation.”