Federal Reserve Takes Severe Inflation: Live Updates

Federal Reserve raise interest rates By nearly three-quarters of a percentage point on Wednesday, in its biggest move since 1994, as the central bank ramps up efforts to tackle the fastest inflation in four decades.

The surge in interest rates, which markets had expected, confirmed that Fed officials are serious about crushing rate increases even if it comes at the expense of the economy.

Referring to how the Fed expects its policies to affect the economy, Officials expect That the unemployment rate will rise to 3.7 percent this year and 4.1 percent by 2024, and that growth will slow significantly as policymakers push borrowing costs sharply higher and stifle economic demand.

The Fed’s policy rate is now set in a range between 1.50 to 1.75 and policy makers have suggested more rate increases in the future. The Fed, in a new set of economic forecasts, has set interest rates as high as 3.4% by the end of 2022. This will be the highest level since 2008, and officials have seen their policy rate rise to 3.8% at the end of 2023. These numbers are well above estimates Previous, which showed rates topping out at 2.8 percent next year.

Federal Reserve officials also recently indicated that they expect to cut interest rates in 2024, which may be a sign that they think the economy will weaken so much that they will need to reorient their policy approach. The main conclusion from the Federal Reserve’s economic forecasts, which it released for the first time since March, was that officials became more pessimistic about their chances of letting the economy deteriorate gently.

Emphasizing this, policy makers cut a sentence out of their post-meeting statement that inflation could moderate while the labor market remains strong – a sign that they may have to rein in job growth to fight inflation under control.

“Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures,” the Fed emphasized in its statement after the meeting.

An official, Kansas City Federal Reserve Bank President Esther George, voted against an interest rate increase. Although Mrs. George has historically been concerned about high inflation and favored higher interest rates, she would have preferred a half-point move in this case.

Until late last week, markets and economists had widely expected a move of half a point. The Fed raised interest rates by a quarter point in March and half a point in May, and indicated that it expects to continue to rise at that pace in June and July.

But central bankers have received a flood of bad news about inflation in recent days. The CPI rose 8.6 percent in May from a year earlier, the fastest pace of increase since late 1981, as monthly inflation remained fast even after excluding food and fuel prices.

While the Fed’s preferred measure of inflation – the personal consumption expenditures measure – is slightly lower, it remains too hot to rest. And consumers are beginning to expect faster inflation in the coming months and even years, based on survey data, a worrying development. Economists believe expectations can come true on their own, causing people to demand wage increases and accept price jumps in ways that perpetuate high inflation.

It is increasingly unlikely that the Fed will be able to cool inflation quickly and gently to the 2 percent annual rate it is targeting on average and over time.

The central bank was trying to put the economy on a more sustainable path without sending it into a crushing recession that would cost jobs and drive growth. Policy makers had hoped to raise borrowing costs to curb demand enough to balance supply and demand without causing great suffering. But with price increases proving stubborn, achieving the so-called soft landing becomes more difficult.

Interest rate increases by the central bank are already starting to seep into the broader economy, Raising mortgage rates And help the housing market start to cool off. Other consumer demand signs appear It starts to slow as money becomes more expensive to borrow, and companies may cut back on expansion plans.

The goal is to affect demand enough to allow supply – still constrained amid global factory shutdowns, shipping problems and labor shortages – to catch up.

But it is difficult to curb demand without impeding growth, especially since consumption makes up the bulk of the US economy. If the Fed has to significantly restrict spending in order to control price increases, it could lead to job losses and business closures.

Markets are increasingly concerned that central bank policy will lead to a recession. Stock prices were dropping Bond market signals are flashing red as traders and economists on Wall Street increasingly anticipate that the economy may be heading for deflation, possibly next year.