'US Will Suffer Recession,If Fed Does Not Ease Interest Rate'

The pace of this year's fast and significant interest rate hikes from the Federal Reserve puts the US economy in danger of entering a recession, and will not be able to control hot rising inflation, US senator Elizabeth Warren said recently.

The Democrat, who represents Massachusetts, was interviewed prior to when the Federal Open Market Committee announced its fourth rate hike in 2022. The hike by 75 basis points is expected and sets the fed funds rate between 2.25 percent up to 2.5%.

The Fed has begun an aggressive rate-hiking process in its quest to bring back the high inflation of consumer prices. CPI for the US soared to 9.1 In June, the rate was 9.1 percent which was the highest level that has been recorded since.

Supply chain issues, COVID outbreaks all over the world, Russian President Vladimir Putin's invasion of Ukraine in February and "near-monopolies who are engaged in price-gouging" are just a few factors behind the high rate of inflation, a lawmaker said.

"And an increase in the rate of interest won't solve all of this," said Warren, noting to the statement that Fed chairman Jerome Powell has "admitted" to this during the testimony before Congress.

"And Yet he continues to continue to push forward with what up is, to date, historically rapid aggressive, aggressive, and high interest rate hikes. If it's not going to bring down some of the costs within our economic system, what it could create is to push the economy into recession," she added. "So I think this is something that the Fed ought to consider, and I believe they need to moderate their aggressive approach. Powell suggested that a more gradual rate of growth is likely to be necessary as rates become more restricting.

Since the Fed started raising rate in the month of March they've increased by 25 fifty and 75 basis points. The most recent one was in line with the increase by 75 basis points which was the first hike since 1994, when Alan Greenspan was serving as the chief of the US central bank.

This year's stock market has been forced into a bear market due to fears that the recent increasing rate hikes could plunge the world's most populous economy into recession. US GDP during the first quarter slowed by 1.6 percent. A second consecutive quarter of declines would be the beginning of a "technical recession. A first estimate of the second-quarter GDP is scheduled for Thursday. An Econoday consensus estimate places the growth rate at 0.5 percent as estimates vary from the contraction of 1.1 percent to an increase of 1.5 percent.

The Fed declared that inflation is high which is a result of the imbalance in demand and supply due to the pandemic, increased prices for energy and food as well as broader pressures on prices. The central bank is trying to curb inflation and decrease demand "is trying to dramatically raise rates to cause businesses to shrink, causing them to or reduce the hours of employees or eliminate employees. This means lots of hardship for the individuals," said Warren.

"Wemust have responses that are appropriate to the situation. Also, we must be cautious when saying that the answer is to take many more workers out," She said.