For its fourth consecutive meeting, the Federal Reserve has announced an interest rate raise, this time of 75 basis points. The latest hike makes short-term interest rates 2.25 to 2.5%, about where they stood in 2019. It’s part of an ongoing effort by the Fed to rein in inflation, which was 9.1% in June.
The Fed still hopes to tamp inflation down to 2% by 2024, and another hike seems likely at the meeting, Sept. 21. Citing ongoing supply chain problems related to the pandemic and the impacts of the Russian invasion of Ukraine. Job gains remain impressive month over month, and unemployment low, making the Fed comfortable with raising rates once more.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed’s board said in a statement.
As borrowing costs rise, businesses might see a slowdown in their revenue, which would cool inflation but also lead them to lay workers off.
The move comes one day before federal economic data for the second quarter of 2022 comes available, revealing whether the U.S. saw a second consecutive quarter of GDP contraction.
The Fed also raised interest rates by 75 basis points in June, so Wednesday’s announcement marks the first time in modern history it has raised rates by so much in consecutive months. By the central bank’s reckoning, it needs to get rates to 3.8% to meet its inflation goals. Recession seems to be the forecast of most financial analysts.
“We think a soft landing is unlikely. Central banks today face sharp trade-offs between growth and inflation. We expect the Fed to change course only next year, when the economic effects of rate rises become clear,” BlackRock analysts wrote.
The Fed “is strongly committed to returning inflation to its 2% objective,” the board said.
Leave a Reply