as we know that in any country there is a central bank that controls the money factor and its printing scheme which always results in inflation and furthermore stagflation. due to the massive amounts of fiat money and debt printing, we observe the prices of assets hike up the scale.
similarly, when we move on with the government holding the reserve currency (commonly the dollar) they name it called federal reserve or we call it the “FED”, under this article we will discuss the factors due to which the FED hikes the rates.
FACTORS BASED ON WHICH THE FED RATES ARE GETTING HIKED!
1. WHY THE FED IS INCREASING ITS RATES
the federal reserve wants to slow down the economy and in order to do that it has to increase the rates of interest so that people demand less and spend less also it increases the quantitative tightening( which can also be the cause for the upcoming debt cycle).
2. WHAT HAPPENS WHEN THE FED RAISES INTEREST RATES?
the higher fed funds rates the higher borrowing cost and its nature becomes more expensive, due to which there is a reduction in demand to borrow money by financial institutions.
3. REASONS FOR THE FED TO HIKE RATES
The US fed announced a rate hike of 0.25% gain. however, the US central bank mentioned that this might be one of the last few rate hikes for now.
4. CULTIVATIVE REASONS BEHIND FED INCREASING RATES
this step could have been influenced by the recent banking crisis.
5. EFFECT IN INDIA TO FED INCREASING RATES
in India, bank and realty stocks fell the most today( 23rd of march 2023) – which generally gave the impact of the fed increasing 0.25% rates. with which even RBI can increase its rEPO rates.
6. FED CURRENT INTEREST RATE
currently fed has just increased its rate from 4.75 to 5%, an incremental of 0.25%.
7. WHO BENEFITS FROM THE HIGHER INTEREST RATES?
as the rate hikes up the profit margin increases, so the larger entities like banks, insurance companies, and brokerage firms generally benefit from higher interest rates.
8. ARE RISING INTEREST RATES GOOD?
people generally know that higher interest rates mean higher borrowing costs, and as a result people generally start spending less.
9. REDUCTION ON INFLATION DUE TO HIKES OF RATES GENERATED BY FED
due to the maximum increase by the fed, the demand for goods and services drops which might cause inflation, and feed has been increasing rates throughout the year.
10. WHAT IF THE FED DOES NOT INCREASE ITS RATE?
this is a hypothetical contradictory case since this is never possible since the government needs to bend the economy no matter how soever the conditions are, but if the fed didn’t increase the rates then the inflation will be converted into a giant debt bubble and a large debt bubble might burst the entire system so in order to control the situation the fed increases the rate.