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The chief economist of Moody’s Analytics calls it “disappointing” that the US Federal Reserve is hiking interest rates once more despite the banking crisis.

According to Mark Zandi, who spoke to Anadolu through email, “the quarter percentage point rate hike won’t be what breaks things, but it shows the Fed’s willingness to take that chance to get inflation down more quickly.”

The Federal Reserve increased its benchmark interest rate by another 25 basis points on Wednesday, despite four US banks experiencing significant financial instability last week. This brought the federal funds rate to between 4.75 percent and 5 percent, the highest level since May 2006.

After four consecutive interest rate rises of 75 points in the second part of last year, this was the second 25-basis-point rate increase of the year, followed by a 50-point increase in December.

It isn’t essential, Zandi declared. “Growth is decreasing, and it will slow even more if banks tighten their lending requirements aggressively as a result of their recent panic. Given the low oil prices, weak rents, and slower wage growth, inflation is likewise moderate and will remain so.

Although it has significantly decreased in the largest economy in the world, the Fed claims that inflation is still well above its 2 percent target.

US annual consumer inflation decreased from 6.4 percent in January to 6 percent in February. Since the period ending in September 2021, this figure was the smallest 12-month growth.

Additionally, this represents a significant drop from the annual gain of 9.1% in June of last year, which was the highest since November 1981.

Multiple factors contributed to the global and US inflation rates reaching record highs.

Issues with the supply chain during the coronavirus disease 2019 (Covid-19) pandemic and the widening gap between a lack of supply and an increase in demand worldwide in the post-pandemic period have all contributed.

The conflict between Russia and Ukraine, which began a year ago, only served as gasoline for the fire by driving up the price of food and oil and upsetting the balance of both industries.

However, the Fed’s historic $5 trillion injection into the economy during the pandemic was another significant factor contributing to the high inflation rate.

Naturally, having too much money in the system led to higher prices and eventually rising inflation.

In the second half of 2021, Fed Chair Jerome Powell has long contended that rising inflation was “transitory” and would eventually subside.

However, he acknowledged that prices are too high and that the central bank would soon take action to bring rising inflation under control in the closing months of that same year.

The Fed’s first action was too late, but it ultimately proved to be a huge step forward for its monetary policy endeavor. It also had an impact on the majority of other central banks throughout the world.

The first rate increase by the central bank, in March 2022, was only the first in a never-ending string of rate increases. It raised interest rates by a total of 425 points seven times last year.

The Fed made a mistake by keeping rates too low for too long after the epidemic, according to Zandi. “Given the uncertainties, the pandemic has brought about, it is unfair to be too critical.”

The analyst claimed that early in 2022 when the war between Russia and Ukraine began, oil prices spiked to their greatest levels in almost 20 years.

The Fed “now risks raising rates too high too fast,” according to Zandi.

The quantity of liquidity in the US and global economies has definitely decreased too quickly as a result of excessive monetary tightening.

Less breathing room for fresh capital has been provided by the sharp and quick rate increases in the world markets.

This is especially true for global manufacturing sectors, which urgently require fresh investment to increase low supply and quickly catch up with increasing worldwide demand in order to reduce inflation.

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