WASHINGTON (AP) – Federal Reserve System on Wednesday raised the underlying interest rate for three quarters of dot for a second direct time in most aggressive drive in more than three decades to tame high inflation.
Fed move will raise his key rate, which affects many consumers and business loans, to range of 2.25% to 2.5%, its highest level since 2018.
Speaking at news conference after the Fed meeting latest policy meeting, Chairman Jerome Powell gave mixed signals about the central bank, most likely next moves. He stressed that the Fed remains seeks to beat chronically high inflation by holding out the possibility that it might soon downshift to a lower rate hiking.
And while fears are growing that the Fed’s efforts may end up cause recession, Powell passed up several possibilities to say central bank will slow its growth if a recession occurs while inflation is still high.
Roberto Perli, economist at Piper Sandler, an investment bank, said the Fed chairman, emphasizing that “even if it caused recession bringing down inflation matters.”
But Powell’s suggestion that rate hiking can slow down now that its key rate is approximately at a level that is considered to be neither support nor restrict growth helped ignite powerful rally on Wall Street, with S&P 500 stocks market the index rose by 2.6%. perspective of lower interest rates usually fuel stocks market profit.
At the same time, Powell was careful during his news conference is not for rule out three more-quarter-up point when the Fed’s policies next meet in September. He said that rate decision will depend on what emerges from the many economic reports that will be published during this time.
“I don’t think the US currently in recession,” Powell said on his news conference in which he suggested that the Fed rate there are hikes already was a bit success in slowdown economy and possibly easing inflationary pressures.
Central bank decision follows jump in inflation up to 9.1%fastest annual rate in 41 years old and reflects his strenuous efforts to slow down price profit all over economy. By raising borrowing rates, the Fed makes borrowing more expensive. out mortgage or auto or business loan. Consumers and businesses then presumably borrow and spend less cooling economy and slowing down inflation.
splash in inflation and fear of recession undermined consumer demand confidence and stirred public anxiety about economy, which sends frustratingly mixed signals. As well as with With the November midterm elections approaching, American discontent has reduced the position of President Joe Biden. public approval rating and increased the likelihood that the Democrats would lose control of House of Representatives and Senate.
Fed moves drastically tighten credit torpedoed housing marketwhich is particularly sensitive to the interests rate changes. Average rate on thirty-year fixed mortgage roughly doubled in in past yearup to 5.5% and home sales have dropped.
Consumers show signs of cutting expenses in in face of high prices. As well as business polls show that sales are slowing down. Central bank bets that it can slow down growth just enough to curb inflation, but not enough to trigger recession is risk which, as many analysts fear, could end badly.
Him news conference, Powell suggested that with in economy slowdown, demand for workers soften modestly, and wages growth perhaps the peak economy develops in a way what should help reduce inflation.
“We are seeing a slowdown. in economic activity that we think we need? he asked. “There is some evidence that we exist.
Fed Chairman also pointed to measures that suggest investors expect inflation to fall back to the central banktarget 2% over time like sign of confidence in its policy.
Powell also Fed officials supported the forecast made last month when their landmark rate will reach range of 3.25% to 3.5% by year end and approximately half-percentage point more in 2023. This forecast, if confirmed, will mean a slowdown in FRS trips. Central bank will reach its year-ultimate goal if she raised key rate on half- meeting point in September and quarter-dot on each of his meetings in November and December.
Now that the Fed has introduced two significant rate hikes, “I really think they’ll tiptoe out of here,” said Thomas Garretson, senior portfolio strategist at RBC Wealth Management.
Thursday when government estimates the gross domestic product for period from April to June, some economists believe that this may show what economy shrunken for a second straight quarter. It would meet one old guess for when the recession started.
But economists say that doesn’t necessarily mean the start of a recession.. During those same six months when the total economy could conclude a contract, employers added 2.7 million jobs – more how in almost all the years before the pandemic. Wage also rising in healthy pace, with many employers are still struggling to attract and keep enough workers.
However, the slowdown growth puts Fed politicians in height-risk question: how high should they raise interest rates on loans if economy slow down? Weaker growth if it causes layoffs and increases unemployment, often reduces inflation on your own.
This dilemma may even become more consistent one for Fed next yearwhen economy may be in the worst shape and inflation is likely to still exceed the central bank’s 2% target.
“How much recession risk are you willing to bear to receive (inflation) back up to 2%, fast compared to over well of a few years?” asked Nathan Sheets, former Fed economist who is global chief economist at Citi. “These are the views of problems they have to deal with with”.
Economists at the bank of America anticipates a “mild” recession later this year. year. Analysts at Goldman Sachs estimate the probability is 50/50. of recession for two years.
AP Economics contributor Paul Wiseman contributed to this report.