EDEN IAS

US FEDERAL RESERVE HIKES ITS BENCHMARK INTEREST RATE

UPSC CURRENT AFFAIRS | US FEDERAL RESERVE HIKES ITS BENCHMARK INTEREST RATE BY 0.75 PERCENTAGE POINT, THE BIGGEST INCREASE SINCE 1994 | 17TH JUNE | ECONOMIC TIMES

SYLLABUS SECTION: GS III (ECONOMY)

WHY IN THE NEWS?

Recently, US Federal Reserve has raise hikes its benchmark interest rate by three-quarters of a percentage point, as it seeks to combat the fiercest surge in U.S. inflation in four decades.

  • Based on past experiences, this sudden rate tightening can trigger a recession.

 

REASONS FOR THE ACTION:

  • The labor market is extremely tight, and inflation is much too high | US FEDERAL RESERVE HIKES ITS BENCHMARK INTEREST RATE.

Ukraine and ongoing supply-chain struggles are creating additional upward pressure on inflation and are weighing on global economic activity.

What is a Recession?

  • A recession is a period of declining economic performance across an entire economy that lasts for several months.
  • It is a part of the business cycle.
  • The business cycle refers to the fluctuations in economic activity that an economy experiences over a period.
  • At the peak of the business cycle, the economy is healthy and growing; stock prices for companies often reach all-time highs.
  • During the recession phase of the business cycle, income and employment decline; stock prices fall as companies struggle to sustain profitability.

 

CHARACTERISTICS OF A RECESSION
  1. Contraction
  2. Unemployment
  3. Income Inequality
  4. Business Cycles
RECESSION V/S DEPRESSION
  1. A recession and a Depression differ on two main criteria: Intensity and duration. Depressions are usually much longer and their severity is spread over several years. Depression is not a clearly define term by any international economic body.
  • The only instance of a Depression being used across the board to mean the same thing is the Great Depression of the 1930s.

Read more: UPSC CURRENT AFFAIRS

SOURCE: ECONOMIC TIMES

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