December 9, 2022

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Fed raises interest rates dramatically again to fight inflation: NPR

Fed raises interest rates dramatically again to fight inflation: NPR

Federal Reserve Chairman Jerome Powell attends the International Monetary and Financial Committee meeting in Washington, DC, on October 14. Powell announced another rate hike on Wednesday.

Jim Watson/AFP via Getty Images


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Jim Watson/AFP via Getty Images

Federal Reserve Chairman Jerome Powell attends the International Monetary and Financial Committee meeting in Washington, DC, on October 14. Powell announced another rate hike on Wednesday.

Jim Watson/AFP via Getty Images

Federal Reserve I ordered another big hike in interest rates On Wednesday, he warned that interest rates must rise further to control stubbornly high inflation.

The central bank raised the benchmark interest rate by 3/4 percentage point. The rate, which was close to zero in March, has jumped 3.75 percentage points in the past eight months. This is the most aggressive series of price hikes in decades, but so far it has done little to curb inflation.

“Interest rates have gone up really fast, and we’re not done yet,” said Greg McBride, chief financial analyst at Bankrate. “It will take some time for inflation to drop from these high levels, even once we start to see some improvement.”

The annual inflation rate in September was 6.2%, According to the Fed’s preferred benchmark – It has not changed from the previous month. The well-known CPI shows prices rising faster, at an annual rate of 8.2%.

Federal Reserve Chairman Jerome Powell has warned that taming such severe inflation will likely require higher interest rates than he and his colleagues predicted just two months ago.

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“What I’m trying to do is make sure our message is clear,” Powell told reporters on Wednesday. “We have some reasons to cover interest rates before we get to this level that we think is sufficiently restrictive.”

At the same time, Powell said that the pace of interest rate increases may slow soon, as policymakers assess the impact of higher borrowing costs on the economy.

“That time is coming, and it may come as soon as the next meeting or the next meeting,” Powell said.

Stocks initially rose with a hint of slight price increases in December or January, but quickly sank in hopes that prices would eventually rise. The Dow Jones Industrial Average fell more than 500 points, or 1.55%. The Standard & Poor’s 500 Index fell 2.5 percent.

McBride argues that in order to rein in inflation, borrowing costs are likely to remain high for an extended period.

“The motto of 2023 is ‘higher, longer,” he said. “When inflation is going at 6, 7 and 8% and the target is 2%, it will take some time.”

Higher interest rates have an effect, even if inflation remains patchy

High borrowing costs have already made a huge impact on the housing market. And the Other parts of the economy are starting to slow down. But consumers, still flocking to cash saved early in the pandemic, continue to spend money. As a result, the Fed may have to hit the brakes harder, and for longer, than they would have done otherwise.

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“We are seeing today that there is very little savings reserve left for households, which may allow them to continue spending in a way that keeps demand strong,” said Esther George, president of the Federal Reserve Bank of Kansas City. “This suggests that we may have to continue with this for a while.”

Like her colleagues on the Federal Reserve’s rate-setting committee, George has expressed her determination to get inflation under control. But she also warned against raising interest rates too quickly at a time of economic uncertainty.

“I have been in a steady and slower camp [rate increases]George said last month, to begin to see how these effects of the delay will unfold. “My concern is that a series of very large price hikes could cause over-steering and not being able to see those tipping points.”

with Polls show inflation is a major concern among votersThe Biden administration and most members of Congress have stayed out of the Fed’s way as it tries to control rates. But a handful of Democrats are beginning to challenge the central bank’s approach, warning that big increases in interest rates could put millions of people out of work.

“We are deeply concerned that raising your interest rates risks slowing the economy to a crawl while failing to slow the rate hike that continues to hurt families,” Senator Elizabeth Warren and colleagues wrote in their article. Monday’s Letter to Federal Reserve Chair Jerome Powell.

The housing market has already slowed to a crawl, such as Highest Mortgage Rates 7% For the first time in two decades.

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Sean Woods, a home builder in Kansas City, said his company went from selling dozens of homes a month before the Federal Reserve began raising interest rates to below five.

“I would never have thought in my wildest dreams that we would go from 3% [mortgage rates] to 7% within six months,” said Woods, president of Ashlar Homes and the Kansas City Home Builders Association.

“I think we’ll be on for about six or eight months,” Woods said. “Usually housing leads us into recessions and leads us out of downturns. And I think from a housing perspective, we’ve probably been in a housing recession since March or April.”

Despite the fallout from higher interest rates, Powell said the central bank is responsible for controlling inflation.

“No one knows if there will be a recession or not, and if so, how bad a recession will be,” Powell said. “Our job is to restore price stability so that we can have a strong job market that will benefit everyone over time.”