(MENAFN- Mohammad Quqas) The Federal Reserve increased the interest rates by 25 in their last meeting.
The inflation rate is still high.
The S&P 500 Index suffers as investors' doubts about the Fed’s policy efficiency grow.
The hot topic became hotter over time due to the lack of serious success in achieving the Fed’s goal. The Federal Reserve raised the interest rate by 25 basis points in the last Fed meeting to reach the highest level of 3.25 since 2008, up from 3.00. Therefore, the increasing interest rates will increase the cost of long-term loans all across the economy.
Additionally, according to a May press release, the Federal Reserve is slated to progressively reduce its holdings of government debt and mortgage-backed securities, which started on the first of June, as another way to combat inflation.
On previous occasions, Powell said,
“Inflation has persisted longer than we thought, and of course, we’re prepared to use our tools to ensure that higher inflation does not become entrenched."
None of us are immune to inflation's effects on our wallets. The economy and individuals' financial situations are both negatively affected. Charlie Munger, an American billionaire investor who made an early appearance in this year's Yahoo Interview, pointed to inflation as the
“greatest long-range danger a society can face aside from nuclear war.”
Inflation has a negative influence on all economic sectors, which exacerbates the crisis.
Nevertheless, despite the Fed's efforts to reduce inflation, the annual inflation rate for the United States was 8.3% for the 12 months ending in August 2022, according to figures provided by the U.S. Department of Labor on September 13.
In the meantime, countries aim for an inflation rate of 2%, which is considered a healthy level for the economy and conducive to economic growth and stability. However, if the rate exceeds the desired 2%, it sends a negative message about the economy, reduces people's ability to save money, and forces them to take on additional debt.
Concerns regarding the effectiveness of the Federal Reserve's policies in the fight against inflation had a painful influence on the S&P 500 index, which was already on the losing side even before the recent interest rate hike was announced. Until three-quarters of a percent interest rate hike hit the market hard, the stock market was in a gloomy mood, with a low of $3559 being recorded. A level not seen since November 2020 was thus noticed by market participants. Furthermore, the S&P 500 fell by 26% from its all-time high to its all-time low for this year, which was seen on October 4th.
Investors' psychology is one of the primary factors that lead to more investments or could cause investors to withdraw from the market and/or other investments; in uncertain times, investors tend to avoid high-risk investments such as investing in the stock market; investors' psychology also plays a role in the economic wheel's movement and speed. As a result of the Fed's policy and the excessive inflation, investors fear economic collapse.
In addition, the Fed's tightening policy hampers investment because of high-interest rates on loans. The Fed's prime goal is to reduce inflation, but many other factors, such as oil prices and tensions triggered by wars and political factors, also play a part. Consequently, the federal government's tools are less effective during this difficult moment.
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