The Fed is still keen to lift rates to reduce inflation whilst ensuring that the economy has a 'soft landing'.
👉 Background: We know Australia's Reserve Bank increased the official cash rate by 0.5% not too long ago. But the US Federal Reserve just one-upped them by increasing their own interest rates by 0.75%.
👉 What happened: This is the biggest hike since 1994 😱. The Fed admitted this was an unusually large rate hike, yet they're still keen to lift rates again come July.
👉 What else: The big reason? US Inflation. It rose by 8.6% in May and the Fed wants to get it down, down, down, down, down. They reckon that increasing rates next month again will help reduce inflation. But, they still need to ensure that the economy has a 'soft landing'.
💡 A ‘soft landing’ is when an economy experiences a slowdown in economic growth... BUT still manages to avoid a recession. Instead of a full blown plane crash, it's when the economy glides gently towards the tarmac.
💡 When a central bank raises interest rates, it wants to raise it enough to stop the economy from overheating without causing a severe downturn.
💡 It's a fine line though... Rate tightening has often resulted in recessions in the past. So, this soft landing is looking more turbulent than once thought.
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