Fed rates hike to persist as U.S. economy grows

According to recent data, the US economy has remarkably recovered from a string of sharp rate increases, showing the Federal Reserve’s fight against historically high inflation is far from over.

The figures reveal that the gross domestic product (GDP) across the pond increased by 2.6% in the most recent quarter after declining by 0.6% in the three months prior to June.

The US dollar index calculated by WSJ, which compares the dollar to a basket of world currencies, rose 0.6% in response to the news. US stocks rose at opening. The unexpected increase was mostly caused by an enormous increase in exports, up over 14%, signalling that the US economy’s fundamental strength is unstable.

This year, the US dollar has outperformed other major currencies, buoyed by the Federal Reserve’s decision to raise interest rates at the quickest clip since the early 1980s. A stronger currency will probably hurt American trade since it will make the nation’s exports less competitive.

Jerome Powell, the head of the Federal Reserve, and the other members of the Federal Open Market Committee have raised borrowing costs by 75 basis points three times in a row, which some experts have described as “crushing” domestic consumer and corporate finances.

In the first half of next year, dwindling consumer expenditure in reaction to increasing rates and prices will cause a small recession. The Fed will likely raise rates again because the upside GDP shock indicates that the cycle of rate increases has not yet significantly reduced expenditure.

The Fed is attempting to reduce activity to realign supply and demand to control inflation by encouraging individuals to save and making corporate borrowing more expensive. In the US, prices have increased by 8.2% over the past year, with core inflation remaining close to 6% for the past few months.

This year, in order to contain an unprecedented price increase, central banks have been compelled to cease years of ultra-stimulative monetary policy. The Bank of England is anticipated to increase borrowing prices by 75 basis points on Thursday, which would be the largest increase in its 25 years of independence. In the UK, prices are up 10%, which is the fastest increase in 40 years.

For the second time in a row, the European Central Bank (ECB) increased interest rates by 75 basis points. The ECB has not tightened policy before a rate increase in July.