Fed Research Reveals: High Rates Impact on Inflation and Markets

According to the research conducted by the economists of the Federal Reserve of Chicago, the U.S. central bank has increased the interest rate to the extent that it will cut inflation by 2%. The Chicago Fed Letter for September published their Vector Autoregressive (VAR) model, which shows that the interest rates have increased by 500 basis points since March 2022. It also mentions that interest rates should stay consistent to control prices, as this management of costs partly led to the crypto market crash in 2022.

According to economists, by mid-2024, there is a high chance that the headline consumer price index will drop to 2.3%, which, as measured by the personal consumption expenditure (PCE) price index, equals 2% inflation. The FED has maintained the maximum employment and price stability at the top level. In global finance markets, inflation and a resilient economy are ideal for risk-takers. However, due to increased rates, there is now a higher risk of financial crash in markets.

Markets are worried that the FED will hold higher rates for long as the oil and food prices constantly increase. Several investment banks have forecasted the same about the longing for high-interest rates. According to the VAR model, reducing the time for high rates will have a more critical influence on inflation and the economy.