The Federal Reserve raised its key interest rate by three-quarters of a point for the fourth time on Wednesday, but signaled it may soon scale back interest rate hikes. 3.75% to 4%, a 15-year high. It was the central bank’s sixth rate hike this year — a streak that has made mortgages and other consumer and business loans increasingly expensive and raised the risk of a recession. But the Fed’s statement suggested it could soon move to a more conservative rate. the pace increases. He said he would review the cumulative impact of higher interest rate hikes on the economy in the coming months. Noting that interest rate hikes take time to have their full impact on growth and inflation, the remarks signaled that Fed policymakers may think borrowing costs have risen enough to slow the economy and reduce inflation. If so, that could suggest they don’t need to raise interest rates as quickly as before. Meanwhile, continued inflated prices and higher borrowing costs are putting pressure on American households and undermining Democrats’ ability to campaign. on the health of the labor market while trying to keep Congress in check. Republican candidates have been hammering Democrats on the punitive effect of inflation ahead of the midterm elections, which end on Tuesday. Many economists expect Chairman Jerome Powell to signal at a press conference that the Fed’s next interest rate hike expected in December may be only half a point, not three-quarters. Usually, the Fed raises interest rates in quarter-point increments. After miscalculating to lower inflation last year, Powell has pushed the Fed to raise rates aggressively to slow borrowing and spending and reduce price pressures to disrupt the economy. The government said the economy grew last quarter and employers are still hiring at a brisk pace. But the housing market has collapsed and consumers are struggling to raise their spending. The average rate on a 30-year fixed mortgage topped 7% last week, up from just 3.14% a year ago, mortgage buyer Freddie Mac said. Sales of existing homes have fallen for eight straight months. Blerina Uruci, an economist at T. Rowe Price, suggested that the decline in home sales is a “canary in the coal mine” that shows the Fed’s interest rate hikes are weakening the high interest rate. sensitive sector like housing. Uruci noted that the Fed’s hikes have yet to meaningfully slow the rest of the economy, particularly the job market or consumer demand. they believe inflation will fall close to the 2% target over the next two years. Several Fed officials said recently that they have yet to see meaningful progress in combating rising costs. Inflation rose 8.2% in September compared to 12 months ago, the highest rate in the last 40 years. However, policymakers may feel they will soon slow the pace of rate hikes, as some early signs suggest inflation may begin to decline in 2023. Costs are barely rising, squeezed by higher prices and more expensive loans. Grunts in the supply chain are reduced, which means fewer shortages of goods and parts. Wage growth is peaking, which should reduce inflationary pressures if accompanied by cuts. However, the labor market remains persistently strong, which could make it harder for the Fed to cool the economy and curb inflation. This week, the government reported that companies announced more jobs in September than in August. There are now 1.9 jobs for every unemployed worker, an unusually large offer. The high ratio means employers will likely continue to raise wages to attract and retain workers. These labor costs are often passed on to higher customers in the form of higher prices, thereby fueling more inflation. Finally, economists at Goldman Sachs expect Fed policymakers to raise the key interest rate to around 5% by March. That’s higher than the Fed predicted in its previous set of forecasts in September. Outside the United States, many other major central banks are also raising rates quickly to try to cool U.S. inflation levels, which were higher than last week. The European Central Bank raised interest rates at the fastest pace in the history of the euro to try to curb inflation, which hit a record 10.7% last month, announcing a second rate hike in a row. Try to reduce consumer prices, which rose at their fastest pace in 40 years, to 10.1% in September. Both Europe and the UK are sliding into recession, even as they raise rates to fight inflation.
The Federal Reserve raised its benchmark interest rate by three-quarters of a point for the fourth time on Wednesday, but signaled it may soon scale back the rate hike.
The Fed’s move raised its key short-term rate to 4% from 3.75%, the highest level in 15 years. It was the central bank’s sixth rate hike this year — a streak that has made mortgages and other consumer and business loans increasingly expensive and raised the risk of a recession.
But in a statement, the Fed suggested it could soon move to a more targeted pace of rate hikes. He said he would review the cumulative impact of higher interest rate hikes on the economy in the coming months. He noted that his interest rate hike will take time to fully affect growth and inflation.
The remarks suggested Fed policymakers may think borrowing costs have risen enough to slow the economy and reduce inflation. If so, that means they don’t need to raise interest rates as quickly as before.
Still, the persistence of inflated prices and higher borrowing costs is weighing on American households and undermining the ability of Democrats to campaign on the health of the labor market as they try to retain control of Congress. Republican candidates hammered Democrats over the punishing effect of inflation ahead of the midterm elections, which end Tuesday.
The Fed’s statement on Wednesday was released after its latest policy meeting. Many economists expect Chairman Jerome Powell to hint at a press conference that the Fed’s next rate hike, expected in December, could be only half a point, not three-quarters.
Typically, the Fed raises rates in quarter-point increments. But after miscalculating inflation last year, Powell pushed the Fed to raise rates aggressively to slow borrowing and spending and ease price pressures.
Wednesday’s latest rate hike coincided with growing concerns that the Fed could tighten credit enough to derail the economy. The government said the economy grew last quarter and employers are still hiring at a brisk pace. But the housing market has cratered and consumers are barely increasing their spending.
Mortgage buyer Freddie Mac said the average rate on a 30-year fixed mortgage topped 7% last week, from just 3.14% a year ago. Existing home sales have fallen for eight straight months.
Blerina Uruci, an economist at T. Rowe Price, suggested that the decline in home sales is a “canary in the coal mine,” demonstrating that the Fed’s rate hikes are weakening a high-interest-rate-sensitive sector like housing. Uruci noted that the Fed’s hikes have yet to meaningfully slow the rest of the economy, particularly the job market or consumer demand.
“As long as these two components remain strong,” he said, Fed policymakers “cannot hope for inflation to fall” near its 2% target over the next two years.
Several Fed officials said recently that they have yet to see meaningful progress in the fight against rising costs. Inflation rose 8.2% in September from 12 months ago, slightly below a 40-year high.
However, policymakers may feel they will soon slow the pace of rate hikes, as some early signs suggest inflation may begin to ease in 2023. Consumer spending is barely rising, squeezed by higher prices and more expensive loans. Grunts in the supply chain are reduced, which means fewer shortages of goods and parts. Wage growth is plateauing, which would reduce inflationary pressures if accompanied by cuts.
However, the labor market remains persistently strong, which could make it harder for the Fed to cool the economy and curb inflation. This week, the government reported that companies announced more jobs in September than in August. There are now 1.9 jobs for every unemployed worker, an unusually large supply.
A high rate means employers will continue to raise wages to attract and retain workers. These higher labor costs are often passed on to customers in the form of higher prices, thereby causing more inflation.
Finally, Goldman Sachs economists expect Fed policymakers to raise the key interest rate to around 5% by March. That’s higher than the Fed itself predicted in its previous set of forecasts in September.
Outside the United States, many other major central banks are also raising rates rapidly to try to cool inflation levels that are higher than in the United States.
Last week, the European Central Bank announced its second consecutive interest rate hike, raising rates at the fastest pace in the history of the euro to try to curb inflation, which rose to a record high of 10.7% last month.
Likewise, the Bank of England is expected to raise interest rates on Thursday to try to reduce consumer prices, which rose at their fastest pace in 40 years, to 10.1% in September. Both Europe and the UK are sliding into recession, even as they raise rates to fight inflation.
