The US central bank raised the benchmark interest rate by three-quarters of a percentage point on Wednesday, June 15, 2022, the largest increase since 1994. This comes on the heels of the Federal Reserve's decision to raise the interest rate by half a percentage point in May 2022, the largest increase since 22 general.

The fact that the Fed is moving decisively shows confidence in the health of the labor market. But the speed with which interest rates are expected to rise underscores growing concerns about the rising cost of living. High inflation is likely to force the Fed to raise interest rates several times in the coming months.

Federal Reserve officials may resort to additional large interest rate hikes in an attempt to cool inflation.

Americans will first experience this shift in policy through higher borrowing costs: getting mortgages or car loans becomes more expensive.

The Fed speeds up or slows down the economy by moving interest rates up and down. The Federal Reserve made borrowing almost free when the pandemic emerged, in an effort to encourage spending by households and businesses. The US central bank has also printed trillions of dollars to boost the economy devastated by the Covid virus, through a program known as quantitative easing. And when credit markets froze in March 2020, the Fed rolled out an emergency credit facility to avert a financial meltdown.

The Fed succeeded in the rescue plan, it did not produce a financial crisis due to Covid. Vaccines and massive spending from Congress paved the way for a quick recovery. However, its emergency measures - and the delay in their removal - also contributed to today's overheating economy.

Unemployment is currently near a 50-year low, but inflation is very high. The US economy no longer needs all that help from the Federal Reserve. And now the Fed is slowing down the economy by aggressively raising interest rates. The danger is that the Fed increases interest rates too much, slowing the economy to the point that it accidentally triggers a recession that leads to higher unemployment.

Every time the Federal Reserve raises interest rates, it becomes more expensive to borrow. This means higher interest costs on mortgages, equity lines of credit, credit cards, student debt and auto loans. Business loans will also be at higher rates for large and small businesses.

The most tangible way to have this effect is through mortgages, where an increase in interest rates has already led to higher prices and a slowdown in sales activity.

Investors expect the Fed to raise the upper limit of its target range to at least 3.75% by the end of the year, up from 1% today.

The Fed raised rates to 2.37% during the height of the last rate-raising cycle in late 2018. Interest rates rose to 5.25% before the Great Recession of 2007-2009.

In the 1980s, the Federal Reserve, led by Paul Volcker, raised interest rates to unprecedented levels to fight hyperinflation. By the peak in July 1981, the effective federal funds rate had exceeded 22%. However, the impact on borrowing costs in the coming months will depend mainly on the pace of interest rate hikes by the Federal Reserve, which has yet to be determined.

Low prices have affected savers. Funds stashed in savings, certificates of deposit and money market accounts have done almost nothing during the pandemic. But the good news is that these savings rates will rise as the Federal Reserve raises interest rates, so savers will start earning interest again.

But this takes a long time. In many cases, especially with traditional accounts at major banks, the effect will not be felt overnight. Even after several interest rate increases, savings rates will remain very low, below the expected inflation and returns in the stock market.

Zero interest rates drive down government bond prices, essentially forcing investors to bet on riskier assets like stocks. The high rates posed a major challenge to the stock market, which was accustomed, if not addicted, to easy money. US stocks plunged into a bear market on Monday amid fears that aggressive Fed rate increases will push the economy into recession.

The final impact of the stock market will depend on how quickly the Federal Reserve raises interest rates and how the underlying economy and corporate profits perform in the future. The goal of the interest rate hike by the Fed is to control inflation while keeping the labor market recovery intact.

Everything from food and energy to metals is becoming more expensive, and it may take some time for the Fed's high-interest rates to start to dampen inflation. Until then, inflation will remain subject to developments in the war in Ukraine, supply chain chaos, and of course, COVID.

Required:

The student must submit an economic study on "the repercussions of raising the interest of the US Central Bank on the macro and micro economy and global trade in the Arab world" and present practical solutions and proposals to confront the crisis. The study includes the following:

1. Political opportunities and challenges to confront the crisis
2. Examples of government interaction with the crisis in developed and developing countries
3. Study changes in the trade balance of developing countries after the global crisis
4. Studying the economic opportunities and challenges associated with the crisis
5. Studying the performance of the financial markets in the Arab countries in the face of the repercussions of the crisis
6. Studying the performance of competencies in the labor market
7. Studying the cultural and social challenges associated with the global crisis
8. Studying the impact of the crisis on the global trade movement
9. Studying the technological opportunities and challenges associated with the crisis
10. Studying the impact of the crisis on price inflation and unemployment rates in Arab countries
11. Proposed practical solutions to deal with the global crisis

Please provide good content including graphs and tables, and you can use the internet and any other aids to present your point of view and suggestions.

 

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The repercussions of raising the interest rate of the US central bank on the macro and micro economy and global trade in the Arab world are significant On the macro level rising interest rates will st... View the full answer