Fed Reserve Rate Hike: America Again Raised Interest Rate

Fed Reserve Rate Hike: America again raised its interest rate by 0.75 percent, what will be the effect on India and the world?

As was estimated, the US central bank Federal Reserve has once again increased the interest rate by 0.75 percent.

This is the fifth increase of the year 2022 and now the effective interest rate in the US has reached 3.25 percent.

It will have a direct effect on America, but this decision of the Fed Reserve will affect the whole world including India.

Due to the peak of retail inflation in America, interest rates are being increased continuously.

The pressure of inflation on the Fed Reserve is that for the third time in a row, the interest rate has to be increased by 0.75 percent.

Also, a further increase is anticipated. Fed Reserve chief Jerome Powell says that retail inflation is currently at a 40-year high and interest rates may have to be raised until it is controlled.

He said after the meeting that we are committed to bringing down retail inflation to 2 percent, which is currently running in the range of 8 percent.

An official statement from the US said that by the end of the year 2022, the effective interest rate here can reach 4.4 percent, while it is estimated to reach 4.6 percent by next year.

Not only this, in the next Fed Reserve meeting to be held in November, there may be an increase of 0.75 percent for the fourth time in a row.

This meeting will take place a week before the mid-term elections in America.

Fed Reserve Rate Hike: What will be the effect on America?

Raising interest rates has a direct impact on the growth rate of the economy and as the Fed Reserve is raising interest rates, the US growth rate will also slow down further.

The Fed Reserve has estimated that the US growth rate could be 1.3 percent in 2023 and 1.7 percent in 2024. This is much less than the earlier estimates.

The unemployment rate in the US continues to rise as growth slows, which is projected to reach 4.4 percent in 2023.

Where and why will it be affected in India?

Stock Market: The immediate effect of raising interest rates by the Fed Reserve is visible in the stock market itself.

Due to this, there is a fall in the US stock market, as well as the pressure on the stock markets around the world increased.

Indian IT companies generate 40 percent of their earnings from the US and the market movement there directly affects the performance of these companies, putting IT stocks under pressure.

Even today the Indian stock market is expected to decline.

Foreign investment: Due to the increase in interest rates in the US, the bond yield also increases and it becomes a profitable deal for foreign investors to invest there.

Due to this, they start reducing investment in the Indian market.

Pressure on Rupee: Due to the increase in interest rates of the Fed Reserve, there is a negative effect on the rupee. This will strengthen the dollar and further increase the pressure on the Indian currency.

What will be the effect on the world?

If the Federal Reserve raises interest rates in America, the growth rate of the economy will slow down. This will further strengthen the fears of recession.

The World Bank and the IMF have already predicted a global recession.

Right now, all Asian countries including America and Europe are also increasing their interest rates, which will also affect their growth rate.