The Fed announced that it was raising interest rates by 75 basis points. What problems do you think increasing interest rates solves? And what would happen if it wasn't increased?
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Seems TM has answered this below :)
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Hmm, I didn't, let me check.
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The days of free money for Wall Street are over. It only took 14 years, but it happened. Zero interest rate policy or near-zero interest rate policy-- ZIRP or NIRP-- were meant to be temporary, but Wall Street got hooked on what it saw as free money.
The few times the Fed tried to hike interest rates more than 25 basis points during this time, Wall Street reacted with temper tantrums in the stock markets. As a result, the Fed retreated or stayed. Instead of disciplining the child with tough love, the Fed behaved like a bad parent and allowed the child to fall into bad habits.
Now that consumer price inflation is a major threat to the global economy (not to mention many of the larger regional economies), there is no choice but to raise interest rates enough to cause consumer price inflation to retreat. With consumer price inflation on the door of 10%, interest rates need to be hiked to a level close to that if not higher to break it.
No matter how quickly the interest rates get hiked or how long it will take, there will be pain. The right move is to inflict sharp pain to initiate a "quick" recovery. The wrong move is to increase the interest rate drip by drip over a longer time period and cause the pain to linger like a dull pounding headache.
Sadly, the Fed will wimp out and raise the interest rate in drips and drabs. We lose either way, but the pain will be with us for a longer time now.
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It is true that whether they increase the interest rates or not, the pain will be with us for a long time.
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