The decision to move 0.75% matched the size of the Fed’s last move in June, which was the largest rate hike in a single meeting since 1994. Wednesday’s decision was unanimously agreed by members of the Federal Open Market Committee who voted. The Fed has now moved in four consecutive meetings to raise borrowing costs in America, extending its effort to curb spending by households and businesses. The goal: to tackle inflation running at rates not seen since the early 1980s. Short-term lending rates are now between 2.25% and 2.50%, comparable to 2019 levels. “Recent indicators of spending and output have softened,” the Fed said in its policy statement. “However, job gains have been strong in recent months and the unemployment rate has remained low. Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher food and energy prices, and broader price pressures.” The Fed again said it “expects continued increases in the target range to be appropriate.” Summer inflation readings have yet to show an easing of inflationary pressures. In June, U.S. prices rose 9.1 percent year over year — the fastest pace since November 1981.
Balancing act
Fed policymakers have said a driver of high inflation remains the war in Ukraine, where economic sanctions have pushed up global energy prices. But Fed officials have acknowledged that the rapid pace of price increases at home is also a result of demand boosted by pandemic-era low-interest rate policy. These inflationary factors will make it difficult for the Fed to achieve its immediate goal of reducing inflation without causing large job losses. A June reading of the labor market showed the unemployment rate at a relatively low 3.6%, almost close to pre-pandemic lows. The story continues As the Fed raises borrowing costs, concerns are growing that the downturn in economic activity will force businesses into layoffs. The FOMC continued to describe job gains as “strong” while inflation “remains elevated.” Wednesday’s rate hike also comes a day before the release of government data on economic growth in the second quarter of the year. After a quarter of negative growth in the first quarter, a second straight negative reading could further cement concerns that the US economy is already in recession. However, uncertainty over the speed and size of rate hikes has led to a flurry of speculation about how high the Fed might raise rates – before worsening economic activity forces the Fed to return to rate cuts. The central bank’s own forecasts from June estimated that the Fed would need to raise interest rates to around 3.8% next year to prevent inflation from slowing, though those forecasts may now be out of date. The Fed’s efforts to undo its pandemic-era stimulus also involve unwinding some of the assets it bought in 2020 and 2021. The Fed on Wednesday made no changes to a previously announced plan for easing, which would is picking up the pace Its assets have soared to about $95 billion a month since September. Since the beginning of the year, the Fed’s assets have totaled about $9 trillion. The Fed will release updated economic forecasts along with its next scheduled policy announcement on September 21. Federal Reserve Board Chairman Jerome Powell speaks to reporters in Washington, U.S., June 15, 2022. REUTERS/Elizabeth Frantz Brian Cheung is a reporter covering the Fed, finance and banking for Yahoo Finance. You can follow him on Twitter @bcheungz. Click here for the latest financial news and financial indicators to help you with your investment decisions Read the latest financial and business news from Yahoo Finance Download the Yahoo Finance app for Apple or Android Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn and YouTube
