The Federal Reserve will take the most aggressive steps to date to curb rapid and sustained inflation, raising interest rates by three-quarters percentage points on Wednesday and causing financial pain to curb prices. Showed that you are ready.
Fed chair Jerome H. Powell said the Fed’s unexpectedly stubborn price hike is likely to continue next month, as interest rate hikes have been the largest central bank since 1994. He emphasized that he was anxious about the officials.
If the central bank raises the policy rate rapidly, it will result in higher housing purchases and business expansion, curbing spending and slowing the economy as a whole. Authorities expect growth to slow in the coming months and years, predict By late 2024, the unemployment rate will rise by about 0.5 percentage points to 4.1 percent as their policies put pressure on businesses and workers.
Powell threatens to curb the supply of commodities such as oil and commodities, such as the war in Ukraine and the closure of factories in China, allowing the Fed to slow inflation without causing a recession. I admitted that it was getting difficult. If the Fed has to overwhelm demand to meet limited supply, it can lead to a slump that closes businesses and unemploys people.
“We’re not trying to cause a recession right now. Let’s be clear about that,” said the Fed, who wants to keep inflation strong and reduce inflation to a 2% target. I explained that I think. “Soft landing”.
But “these routes are much more difficult because of factors beyond our control,” he added later, “the environment has become more difficult in the last four or five months. It’s obvious. “
Recent moves have set the Fed’s policy rate in the range of 1.50 percent to 1.75 percent, with further increases in interest rates. Powell said discussions at the Federal Open Market Committee’s next meeting in July would discuss whether to raise interest rates by 0.5 points or repeat a three-quarter point increase. I didn’t expect any movement, “he added. This size is common. “
Understand inflation and its impact on you
Interest rates are expected to reach 3.4% by the end of 2022, officials said. Economic forecast They announced on Wednesday. This is the highest level since 2008. The Fed’s policy rate is expected to peak at 3.8% at the end of 2023, rising from 2.8% when it was last announced in March.
As interest rates rise, policymakers expect growth to slow from this year and the unemployment rate to rise slightly.
Cathy Bossjanchić, Chief US Economist at Oxford, said: Economy. “Currently, the focus is heavily dependent on inflation.”
Until the end of last week, investors and many economists expected the central bank to raise interest rates by just 0.5 percentage points at this week’s meeting. The Fed showed that it expected to rise a quarter point in March and 0.5 points in May, and that pace would continue in June and July.
But lately, central banks have been receiving a bunch of bad news about inflation. The consumer price index in May rose 8.6% year-on-year, the sharpest rise since late 1981. The pace was still active after removing food and fuel prices.
Fed Recommended Price Gauge — Private consumption expenditure Workaround — I’m climbing a little slowly, but it’s too hot to be comfortable. And consumers are beginning to expect faster inflation in the coming months and years, Based on research, This is a worrying development. Economists believe that expectations are self-fulfilling and that people will demand higher wages and accept price spikes in a way that perpetuates high inflation.
“What we are looking for is compelling evidence that inflationary pressures are weakening and inflation is receding,” Powell said at a press conference Wednesday, saying that inflation is worsening instead. Stated. “We thought we needed strong action.”
An official of the Federal Reserve Board, President of the Federal Reserve Bank of Kansas City, Esther George, voted against the rate hike. George has historically been worried about high inflation and has favored higher interest rates, but in this case she would have preferred a half-point move.
Some analysts have found Powell’s view that soft landings may still be optimistic in light of the Fed’s economic forecasts and the more aggressive policy paths the central bank has shown. Wells Fargo economists have announced that they expect a recession to begin in the middle of next year after the Fed’s meeting.
“The Fed is a little more realistic about how difficult it is to reduce inflation without damaging the labor market,” said Sarah House, senior economist at Wells Fargo. She said, “There is a growing awareness that soft landing is getting harder and harder. Still, I think they are drawing pretty rosy pictures.”
Stock prices have plummeted and bond market signals are flashing red as Wall Street traders and economists increasingly expect the economy to fall into recession. On Wednesday, the S & P 500 rose 1.5%, after the announcement of the decision and Mr. Powell’s press conference. This is probably because investors were already expecting the Fed to make a big move.
The economy has been strong so far, but the Fed’s actions are beginning to affect the real world. Mortgage rates It has risen sharply and is helping to cool the housing market.Demand for consumer goods Showing signs It begins to slow down as borrowing becomes more expensive. Employment growth is strong, but it is starting to slow down.
The future economic path may be difficult, but Fed policymakers argue that things will get worse in the long run if no action is taken. Workers’ wages are not catching up as prices soar. So even in a very strong labor market, families are lagging behind in trying to get gas, food and rent.
“Without price stability, we can’t get the labor market we want,” Powell said Wednesday, with authorities wanting a lot of employment opportunities and rising wages. He explained that it is an employment market. “It won’t happen at the level of inflation we have.”
The White House plays a key role in controlling inflation, despite the Biden administration doing what it can to reduce the costs of needy consumers and encouraging businesses to improve their gas supply. I have emphasized that I am playing.
“The Federal Reserve has a major responsibility for controlling inflation,” said President Biden. I have written In the recent opinion section. He added, “Presidents of the past have tried to improperly influence that decision during periods of rising inflation. I don’t do this.”
