The Federal Reserve approved its third consecutive interest-rate rise of 0.75 percentage point and signaled additional large increases were likely even though they are raising the risk of recession, reports the Wall Street Journal.
"We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t," Fed Chairman Jerome Powell said at a news conference after the rate decision.
Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting (Wall Street Journal)
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Excerpt from the Wall Street Journal: Fed officials voted unanimously to lift their benchmark federal-funds rate to a range between 3% and 3.25%, a level last seen in early 2008. Nearly all of them expect to raise rates to between 4% and 4.5% by the end of this year, according to new projections released Wednesday, which would call for sizable rate increases at policy meetings in November and December. Analysts said they hadn’t expected the Fed to show quite so high an endpoint for the rate. Given how persistently elevated inflation has been, "I wouldn’t be surprised to see them go even higher than what they’ve written down—say, to 5%," said Ellen Meade, an economist at Duke University who is a former senior adviser at the Fed.
According to All Things Considered, a broadcast from NPR, the central bank is raising interest rates at the fastest pace since the early 1980s. Listen to the lessons today's Fed chairman Jerome Powell learned from former chair Paul Volcker.
Raising interest rates is a lesson Powell learned from former Fed chair Paul Volcker (NPR's All Things Considered)Embed from Getty ImagesEmbed from Getty Images
As expected, markets sank last week when the Federal Reserve hiked its benchmark federal funds rate 75 basis points to a target of 3-3.25%. The market’s response had less to do with what the Fed did than what it promised at the same time. Policy makers not only indicated future rate hikes, but their forecasts revealed how ready they are to risk recession in order to corral inflation, writes Forbes.
The Fed Has A Long Way To Go (Forbes)
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Excerpt from Forbes: History reinforces these interpretations of future Fed actions. For any who can remember the last great inflation of the 1970s and 1980s or have studied it, it is apparent that monetary policy can make no headway against inflation until interest rates rise to levels that rival the rate of inflation itself. Consider that today, even after pushing the federal funds rate above 3.0% and with 10-year treasury yields at almost 4.0%, inflation of over an 8% rate still allows borrowers to repay loans with dollars that have lost more real buying power than those borrowers pay in interest. This encouragement to use credit must end before monetary policy can put a crimp in inflation. If it is now clear that matters demand still higher interest rates and that the Fed seems committed to that need, investors increasingly are coming to terms with the likely economic ramifications – in other words, a heightened risk of recession.
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