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The Fed hiked key interest rates for the seventh time this year

The Federal Reserve raised interest rates for the seventh time this year while signaling it was moving more cautiously as the US economy slows.

The Fed’s rate-setting committee raised its benchmark rate by 0.5 percent on Wednesday, raising its target rate to a range between 4.25% and 4.5%. , Highest level in 15 years. affects the federal funds rate cost of credit for consumers and businesses across the economy.

The half-percentage-point increase is a step down from a string of big interest rate hikes this summer, when the Fed jumped 0.75% four times in a row in an effort to stave off the most brutal inflation battle in four decades.

In an almost identical statement issued last month, the Fed said the economy is seeing “modest” growth and that inflation is “elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices and broader price ” Pressure.”


The Federal Reserve raised interest rates for the seventh time this year

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Specifically, policymakers indicated they plan to continue raising rates, but suggested they would do so more slowly than they did this year.

Fed Chair Jerome Powell said, “We are seeing an impact on demand in the most interest-sensitive sectors of the economy, such as housing. However, it will take time to feel the full effects of monetary restraint, particularly on inflation.” reporters on Wednesday. “We still have some ways to go,” he added.

not getting comfortable

Stock markets climbed earlier this week on hopes that the worst of the Fed’s rate hikes is over. But stocks fell on Wednesday after Powell insisted that the central bank was planning to hike rates to counteract what it sees as a historically tight labor market. Is.

“We may have to raise rates higher to get to where we want to go. That’s why we’re lowering the high rates and we’re expecting them to stay high for a while,” he said.

The Fed expects interest rates to rise to between 5.1% and 5.4% next year – closer to 2006 levels.

“As for the future course of policy, officials now expect a higher peak funds rate next year, followed by rate cuts in 2024 and 2025,” Rubella Farooqi, principal US economist at High Frequency Economics, said in a report. “The Fed has now moved into the second phase of its rate hike cycle, from a front-loading approach to a slow rate shift until rates are sufficiently accommodative.”

“Stagflation” Ahead?

The Fed’s assessment of the economy has deteriorated in recent months. It now expects weak economic growth of just 0.5% next year and predicts unemployment will rise from the current rate of 4.6% to 3.7%. The Fed also expects inflation to remain firm for a longer period of time, with its favorite price increase, driven by personal consumption spending, remaining at 3.1% next year.

,[T]”The combination of lower GDP and higher inflation signals a recession,” Adam Crisafulli of Vital Knowledge said in a note.

Consumer Price Index – A closely watched inflation gauge – fell to 7.1% in November That led to declines in energy, commodity and used car prices from a year earlier, the Labor Department reported Tuesday. The reading was down from a peak of 9% in June, driven by rising fuel prices.

Still, 7.1% is much higher than the Fed’s 2% inflation target, and Powell insisted that the Fed plans to keep raising rates for the foreseeable future, even if it leads to an economic crisis and high unemployment,

“Reducing inflation requires a sustained period of downward trend growth and some softening of labor market conditions,” he added. “We’ll stay the course until the job is done.”

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