The latest moves by central banks have pushed benchmark short-term interest rates into the range of 4.5% to 4.75%, the highest level in almost 15 years.
WASHINGTON — The Federal Reserve (Fed) on Wednesday extended its fight against high inflation by raising key interest rates by a quarter of a percentage point, raising it for the eighth time since March. The Fed also signaled that inflation remains high enough to warrant further rate hikes, even as it eases.
Smaller than previous rate hikes, and even bigger before that, the Fed’s latest move could make many consumer and business loans even more costly, increasing the risk of a recession. .
In a statement, a Fed official reiterated language from March that “continuing to raise the[rate]target range would be appropriate.” This is seen as an indication that he intends to raise his benchmark rate again at the next meeting in March and possibly May.
The Fed rate hike was announced a day after the government reported that: Wages and Benefits Growth for American Workers Slows Three consecutive slowdowns in the last three months of 2022. That report could help reassure the Fed that higher wages won’t help boost inflation.
In a statement, the Federal Reserve retained language suggesting further rate hikes were slated, but noted for the first time that price pressures were easing. It’s still stuck high.” The statement also hinted that the Fed was likely to raise rates only moderately by about half a percentage point over the next few months and was weighing when to finally stop raising rates.
But the overall message was that the Fed has not finished raising rates.
Fed Chair Jerome Powell said at a news conference: “We will need more evidence to be confident that inflation is following a long and sustained downward trajectory.
There is speculation among Wall Street investors and many economists that the Fed may soon decide to stop its aggressive move to tighten credit as inflation continues to decline. Widespread. At his last December meeting, Fed policymakers had predicted that eventually he would raise the benchmark interest rate by two minutes to a level where he needed an additional rate hike of one point.
But Wall Street investors are pricing in just one more rate hike. In fact, by and large, they expect the Fed to reverse course and actually cut rates by the end of the year. That optimism has helped push stocks higher, bond yields lower, credit easing, and pushing in the opposite direction of the Fed’s favor.
The gap between the Fed and financial markets is important because rate hikes need to affect the economy through the market. The Fed directly manages major short-term interest rates. But it only indirectly controls the borrowing rates that people and businesses actually pay, such as mortgages, corporate bonds, and auto loans.
The results can be seen at home. After the Fed first started raising rates, the average fixed rate on 30-year mortgages soared. It ended up being over 7%, more than double what he had before the start of the hike.
But since the fall, the average mortgage rate has fallen to 6.13%, lowest level since SeptemberHome sales fell further in December, but the number of signed contracts for home purchases actually rose. This suggests that low interest rates may be drawing some homebuyers into the market.
Over the past few months, Fed officials have scaled back rate hikes. From his fourth consecutive rate hike of an unusually large 3/4 point last year, to his 0.5 point hike in December and his 0.25 point hike on Wednesday.
A slower pace is meant to help the Fed make a series of riskier decisions this year. The central bank’s latest move has pushed the benchmark short-term interest rate into his 4.5% to 4.75% range, the highest level in almost 15 years.
Slowing inflation suggests that rate hikes are starting to hit their target. However, inflation is still well above the central bank’s target of 2%. The risk is that with some sectors of the economy weakening, the cost of borrowing could be higher than ever before, pushing the economy into recession later this year.
For example, retail sales have fallen for the second month in a row, suggesting that consumers are becoming more cautious about spending. Manufacturing output has been down for two months. Meanwhile, the U.S. job market, the most important pillar of the economy, remains strong, with the unemployment rate at his 53-year low of 3.5%.
The Fed’s latest policy statement shows that the central bank no longer sees COVID-19 as a driver of inflation. It removed from its statement any reference to the pandemic as the cause of the supply shock that has heightened inflation. Also removed reference to “public health” as one of the factors to consider when evaluating next steps.
Powell expressed concern that wage increases in the labor-intensive service sector would drive inflation too high, as firms have raised wages sharply over the past year in an attempt to attract and retain enough workers. Firms typically pass on increased labor costs to customers by charging higher prices, thereby perpetuating inflationary pressures.
But recent indicators point to slowing wage growth. And he said the overall inflation rate in December, which was a 40-year peak, fell from 9.1% in June to 6.5% in December. The decline is partly due to cheap gas, which has fallen to a national average of $3.50 per gallon from $5 in June.
Supply chain backups have also been largely eliminated, leading to lower product prices. Used car prices, which surged during the pandemic amid car shortages, have now fallen for months.
Other major central banks are also fighting high inflation by raising rates. The European Central Bank is expected to raise its base rate by half a percentage point at Thursday’s meeting. Inflation in Europe has slowed, but remains high. 8.5% in January compared to a year ago.
The Bank of England is also expected to raise rates at its meeting on Thursday. Inflation reached 10.5% in the UK.of The International Monetary Fund predicts The UK economy is likely to slip into recession this year.
https://www.wfaa.com/article/news/nation-world/federal-reserve-inflation-fight-far-from-over/507-2ce240a1-d152-454e-a833-dd68d4a2e547 Federal Reserve announces rate hike of 1/4 point