Teh One Who Knocks
06-15-2022, 06:32 PM
By Megan Henney | FOXBusiness
https://i.imgur.com/jUQsRWFl.jpg
The Federal Reserve on Wednesday raised its benchmark interest rate by 75-basis points for the first time in nearly three decades as policymakers intensify their fight to cool red-hot inflation, a move that threatens to slow U.S. economic growth and exacerbate financial pressure on Americans.
The 75-basis point hike – the first since 1994 – underscores just how serious Fed officials are tackling the inflation crisis after a string of alarming economic reports. The move puts the key benchmark federal funds rate at a range between 1.50% to 1.75%, the highest since the pandemic began two years ago.
Officials also laid out an aggressive path of rate increases for the remainder of the year, with new economic projections released after the two-day meeting showing that policymakers expect interest rates to hit 3.4% by the end of 2022, which would be the highest level since 2008. By comparison, the March estimate showed that officials had penciled in rates hitting 2.5% by year's end.
"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures," the Fed said in its post-meeting statement.
Until just a few days ago, economists widely expected the central bank to proceed with a 50-basis point rate hike – double the typical size – at its June meeting. Policymakers had approved a 50-basis point hike in May and laid out a roadmap for similarly sized increases at their upcoming meetings, assuming that data evolved as expected.
But a dismal Labor Department report last week showed the consumer price index rose 8.6% in May from a year ago, the fastest pace of increase since December 1981, dashing economists' hopes that the inflation spike was starting to fade. And a different survey released Monday showed that households are bracing for notably faster price increases – a worrisome sign because Fed officials believe such expectations can be self-fulfilling.
The question now is whether the Fed can successfully engineer the elusive soft landing — the sweet spot between tamping down demand to cool inflation without sending the economy into a downturn. Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.
Economic projections show that while policymakers expect rate hikes to conclude in 2023 at a peak of 3.8%, they have also forecast several modest interest rate cuts in 2024 – a sign that the Fed could be bracing for a slowdown in coming years.
https://i.imgur.com/jUQsRWFl.jpg
The Federal Reserve on Wednesday raised its benchmark interest rate by 75-basis points for the first time in nearly three decades as policymakers intensify their fight to cool red-hot inflation, a move that threatens to slow U.S. economic growth and exacerbate financial pressure on Americans.
The 75-basis point hike – the first since 1994 – underscores just how serious Fed officials are tackling the inflation crisis after a string of alarming economic reports. The move puts the key benchmark federal funds rate at a range between 1.50% to 1.75%, the highest since the pandemic began two years ago.
Officials also laid out an aggressive path of rate increases for the remainder of the year, with new economic projections released after the two-day meeting showing that policymakers expect interest rates to hit 3.4% by the end of 2022, which would be the highest level since 2008. By comparison, the March estimate showed that officials had penciled in rates hitting 2.5% by year's end.
"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures," the Fed said in its post-meeting statement.
Until just a few days ago, economists widely expected the central bank to proceed with a 50-basis point rate hike – double the typical size – at its June meeting. Policymakers had approved a 50-basis point hike in May and laid out a roadmap for similarly sized increases at their upcoming meetings, assuming that data evolved as expected.
But a dismal Labor Department report last week showed the consumer price index rose 8.6% in May from a year ago, the fastest pace of increase since December 1981, dashing economists' hopes that the inflation spike was starting to fade. And a different survey released Monday showed that households are bracing for notably faster price increases – a worrisome sign because Fed officials believe such expectations can be self-fulfilling.
The question now is whether the Fed can successfully engineer the elusive soft landing — the sweet spot between tamping down demand to cool inflation without sending the economy into a downturn. Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.
Economic projections show that while policymakers expect rate hikes to conclude in 2023 at a peak of 3.8%, they have also forecast several modest interest rate cuts in 2024 – a sign that the Fed could be bracing for a slowdown in coming years.