In a statement, the Fed said it was “particularly alert to inflationary risks.” “Recent spending and production indicators have softened. 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 said. The central bank added that Russia’s war against Ukraine is “causing enormous human and economic hardship” as well as “additional upward pressure on inflation” and weighing on global economic activity. The U.S. central bank is aggressively raising interest rates to levels not seen since the mid-1990s as it struggles to contain soaring prices, which rose 9.1 percent annually in June, the fastest rate of inflation since 1981 . The hike lifts the Fed’s borrowing costs to between 2.25% and 2.5% and is the Fed’s fourth rate hike this year. It comes as central banks around the world try to calm rising prices with higher interest rates. Fed Chairman Jerome Powell indicated that there will be more hikes in the future if inflation is not brought under control. Powell said he does not believe the U.S. is currently in a recession, but that the Fed needs to slow growth in order to control inflation. “We’re not trying to have a recession and we don’t think we should,” Powell said. “We believe there is a path to reduce inflation while maintaining a strong labor market.” However, he said he expected the labor market to soften in response to the Fed’s moves and that it was necessary to tame inflation. “Price stability is what makes the whole economy work,” Powell said. So far, rate hikes appear to have done little to curb price growth, and costs for everything from food and rent to gas remain high. The Fed doesn’t meet again until September, when more economic data will be available and its decision-making committee should be able to better see if its policy is working. An important measure of the economy will be released on Thursday when the Commerce Department releases its latest survey of gross domestic product (GDP) – a broad measure of the cost of a wide range of goods and services across the US economy. Many economists expect growth to have slowed for a second straight quarter – a trigger used by many to herald a recession. However, a recession is officially declared by the National Bureau of Economic Research (NBER), a research group that uses a wide range of measures, including job growth, to decide when the US economy is contracting. The NBER often makes its announcement long after a recession begins as it evaluates other economic factors. Job growth remains strong – the US added 372,000 jobs in June and the unemployment rate remained low at 3.6%. But for many, two months of declining GDP is a strong indication that the economy is in recession. Michael Strain, director of economic policy studies and senior fellow at the right-leaning American Enterprise Institute, pointed out this week that all 10 of the past US recessions have been preceded by two consecutive quarters of negative economic growth. Question: Of the last 10 times the US economy experienced two consecutive quarters of negative economic growth, how many times was it officially declared a recession? Answer: 10. pic.twitter.com/yrR1kwlC4r — Michael R. Strain (@MichaelRStrain) July 25, 2022 With the midterm elections looming and the Biden administration facing an uphill battle to retain control of Congress, the economy has become the central battleground. Republicans have seized on the mixed economic data to blame the Biden administration for the slowdown, accusing Democrats of “redefining the recession and downplaying the red flags in the economy” in an “attempt to deny the tough economy they’ve created.”
