Fed attacks US inflation with another interest rate hike

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The US Federal Reserve on Wednesday again raised the benchmark interest rate by three-quarters of a percentage point in its ongoing battle to tamp down raging price pressures that are squeezing American families.

It was the second straight 75 basis point increase, and the fourth rate hike this year, as US central bankers move aggressively to cool the strongest surge in inflation in more than four decades, without derailing the world’s largest economy.

President Joe Biden is facing political backlash for surging prices, which he has mainly blamed on the Russian invasion of Ukraine that has sent global food and energy prices soaring. 

Fed Chair Jerome Powell and others have made it clear they are willing to risk a downturn and will keep raising interest rates until they see solid evidence that inflation is moving back towards the two percent goal.

“Recent indicators of spending and production have softened,” the FOMC statement said. 

Economists say this has been the most aggressive Fed tightening cycle since the 1980s, when stagflation — a wage-price spiral and stagnant growth — crippled the US economy.

Powell has argued that the US economy is on solid footing and able to withstand the rate increases, and Wednesday’s statement noted that “job gains have been robust in recent months, and the unemployment rate has remained low.” 

All eyes will be on Powell’s press conference starting at 2:30 pm (1830 GMT) for indications of whether he thinks the Fed may be able to ease up or will continue the aggressive moves.

Policymakers seemed to acknowledge that some factors are beyond their control.

While prices have continued to rise, with home prices hitting a new record, rising mortgage rates have slowed housing sales for five straight months.

Meanwhile, the job market has remained strong, and surveys show inflation expectations in the months ahead have started to trend lower.

GDP in the first quarter contracted 1.6 percent, and the first reading on the April-June period is due out Thursday. 

Two quarters of negative growth are generally considered a sign the economy is in recession, although that is not the official criteria.

“Brace yourself,” Swonk said on Twitter, likening the surge in inflation to a cancer that will spread if left untreated.

Kansas City Fed President Esther George dissented at the June meeting, warning that moving too fast could be “unsettling” and raise recession fears, but voted for the big rate hike this time.

Originally published as Fed attacks US inflation with another interest rate hike


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