Continued economic volatility and uncertainty anticipated as the year progressesAM Best Associate Director Ann Modica provides an economic update addressing the Federal Reserve’s move to rein in inflation by raising interest rates by three-quarters of a percentage point. Visit here to view the entire program.
OLDWICK, N.J.–(BUSINESS WIRE)–In this episode of AM BestTV, Ann Modica, associate director, credit rating criteria, industry research and analytics, AM Best, discusses the Federal Reserve’s latest move to combat inflation with its largest interest rate since 1994.
In the episode, Modica says that inflation in the United States has been much more persistent and stubborn than originally anticipated, as evidenced by the 8.6% year-over-year increase recorded in May. The Fed’s 75 basis point increase out of its June meeting brought the federal funds rate to 1.5-1.75%.
“This is more aggressive than the 50 basis point hike that had been expected before the release of the most-recent inflation numbers,” said Modica. “The Fed really has a very narrow path to bring inflation under control without causing a recession.”
Modica said she anticipates continued economic volatility and uncertainty as the year progresses, noting the Fed’s revised downward projections for GDP, and upward projections for inflation and the unemployment rate. Most notable, she said, was the Fed’s new projection for the federal funds rate at the end of 2022; increasing the rate to 3.4% in the June meeting from 1.9% in the March meeting.
“Rate increases have to be just right in order to get the soft landing the Fed is hoping for. Unfortunately, many economists believe that the Fed won’t be able to pull off a soft landing and even Fed Chairman Jerome Powell noted that the path to bring down inflation without a recession is not getting easier.”
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AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.