Federal Reserve Approves Interest Hike, Expects More
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Federal Reserve Approves Interest Hike, Expects More
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An interest rate hike is necessary because of inflation, but it could cause serious economic problems.
From CNBC. The Federal Reserve on Wednesday approved its first interest rate increase in more than three years, an incremental salvo to address spiraling inflation without torpedoing economic growth.
After keeping its benchmark interest rate anchored near zero since the beginning of the Covid pandemic, the policymaking Federal Open Market Committee said it will raise rates by a quarter percentage point, or 25 basis points.
That will bring the rate now into a range of 0.25%-0.5%. The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing and credit. Fed officials indicated the rate increases will come with slower economic growth this year….
Officials also adjusted their economic outlook on multiple fronts, seeing much higher inflation than they expected in December and considerably slower GDP growth.
Committee members bumped up their inflation estimates, expecting the personal consumption expenditures price index excluding food and energy to reflect 4.1% growth this year, compared with the 2.7% projection in December 2021. Core PCE is expected to be 2.7% and 2.3%, respectively, in the next two years before settling to 2% over the longer term.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the statement said.
On GDP, December’s 4% was sliced to 2.8%, as the committee particularly noted the potential implications of the Ukraine war. Subsequent years were unchanged. The committee still expects the unemployment rate to end this year at 3.5%.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the statement said. “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
Stocks initially reacted negative to the announcement but then bounced back. Bond yields momentarily moved higher, with the benchmark 10-year Treasury note rising to 2.22% before receding….
Changing course
But myriad factors have combined to force the Fed’s hand on inflation, a condition that policymakers last year dismissed as “transitory” before capitulating. Officials over the past two months have strongly indicated that interest rate hikes are coming, with the main question left for investors being how many increases and how quickly they would come.
The current trend of price increases, at their fastest 12-month pace in 40 years, has been fed by demand that has far outstripped supply chains that remain clogged if less so than their pandemic-era peaks. Unprecedented levels of fiscal and monetary stimulus — more than $10 trillion worth – have coincided with the inflation surge. And the Ukraine war has coincided with a major spike in oil prices, though that has abated in recent days….
Prices are up 7.9% year over year, according to the consumer price index, which measures a wide-ranging basket of goods and services. Energy has been the biggest burden, as gasoline prices have risen 38% in the 12-month period.
However, price pressures have broadened out from simply gas and groceries.
For instance, clothing prices, after plummeting in the early days of the pandemic, have risen 6.6% over the past year. Motor vehicle repair costs are up 6.3% and airline fares have jumped 12.7%. Rent of shelter costs, which make up nearly one-third of the CPI, have been moving up sharply in recent months and are up 4.8% year over year.
All of those cost increases have left the Fed’s 2% inflation target in the dust….
Share your prayers for our economy in the comments.
(Excerpt from CNBC. Photo Credit: Canva)
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Inflation is and has been caused by the our oil/gas companies and they are getting away with it…thanks to Biden. He has not stood up to this wrong doing!! ALL of you need to help put pressure on this president to do what is right for the American people and get a handle on this situation of wrong!! Get into reality.
Reality check…! Inflation has increased since Biden took office and dramatically changed federal policies. We didn’t have the inflation problems 2 years ago under President Trump because his policies allowed our free market system to flourish and grow for all the people to benefit. Oil producers are like any free market business, whose purpose is to to be profitable for there investors and owners. We should not want our businesses controlled by the government like they are in China, Russia, or other authoritarian states. Inflation is the result when the demand on a product is greater than the supply of a product, thus increasing its price. Want the supply to be there to meet the demand, then create federal and state policies that allow people to work and businesses to produce without heavy handed restrictions so they can be profitable and continue to exist! Example….what states have flourished during the plandemic? Those that have remained mostly open and respectful of people and businesses rights in our free country. That’s reality.