Federal Reserve Issues Largest Rate Hike in Nearly Three Decades (AM BestTV)

BY Business Wire | ECONOMIC | 06/16/22 04:27 PM EDT

OLDWICK, N.J.--(BUSINESS WIRE)-- In this episode of AM BestTV, Ann Modica, associate director, credit rating criteria, industry research and analytics, AM Best, discusses the Federal Reserve?s latest move to combat inflation with its largest interest rate since 1994. Click on http://www.ambest.com/v.asp?v=ambrsfedratehike622 to view the entire program.

In the episode, Modica says that inflation in the United States has been much more persistent and stubborn than originally anticipated, as evidenced by the 8.6% year-over-year increase recorded in May. The Fed?s 75 basis point increase out of its June meeting brought the federal funds rate to 1.5-1.75%.

?This is more aggressive than the 50 basis point hike that had been expected before the release of the most-recent inflation numbers,? said Modica. ?The Fed really has a very narrow path to bring inflation under control without causing a recession.?

Modica said she anticipates continued economic volatility and uncertainty as the year progresses, noting the Fed?s revised downward projections for GDP, and upward projections for inflation and the unemployment rate. Most notable, she said, was the Fed?s new projection for the federal funds rate at the end of 2022; increasing the rate to 3.4% in the June meeting from 1.9% in the March meeting.

?Rate increases have to be just right in order to get the soft landing the Fed is hoping for. Unfortunately, many economists believe that the Fed won?t be able to pull off a soft landing and even Fed Chairman Jerome Powell noted that the path to bring down inflation without a recession is not getting easier.?

AM BestTV covers exclusive AM Best and insurance industry information and reports, targeted topics and key developments in the insurance, reinsurance and related sectors daily. Sign up for alerts of episodes at www.ambest.com/multimedia/ambtvsignup.html. View AM BestTV episodes at www.ambest.tv.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright ? 2022 by A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Source: AM Best

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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