The Federal Reserve on Wednesday raised the federal funds rate by 75 basis points in an effort to control inflation and stabilize the U.S. economy. This is the third rate hike by the U.S. central bank, after raising the benchmark rate by 50 basis points in March.
Fed raises rate by 75 basis points for second straight time to control inflation, central bank says “inflation remains elevated.”
With inflation soaring in America, the U.S. Federal Reserve raised the federal funds rate again, increasing it by 75 basis points Wednesday. This is the second 75 basis point increase in a row.
“Recent indicators of spending and output have softened. Nevertheless, job creation has been robust in recent months and the unemployment rate has remained low” the Fed said Wednesday in a press release. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, rising food and energy prices, and broader price pressures.“
With today’s 75bp rate hike the Fed has raised rates to the level it got to in 2018 before caving.
$9 trillion in debt has been added since.
– Sven Henrich (@NorthmanTrader) July 27, 2022
This follows the recent Consumer Price Index (CPI) report, which indicates that the CPI data reflects a 9.1% year-over-year increase. June’s CPI data had increased at the fastest annual rate since 1981.
It also comes after the recent debate over the technical definition of a “recession“. Last week, the White House released two articles stating that a second consecutive quarter of negative gross domestic product (GDP) does not indicate that the United States is in a recession.
In one of the Biden administration’s articles, Treasury Secretary Janet Yellen confirmed that she believes this is not the “technical definition” of a recession.
Powell’s first line:
The Fed is working expeditiously to bring inflation down.
– Callie Cox (@callieabost) July 27, 2022
At this month’s Fed meeting, the U.S. central bank said Russia was hurting the global economy. “Russia’s war on Ukraine is causing enormous human and economic hardship“, the members of the Federal Open Market Committee (FOMC) said Wednesday. “The war and related events are creating additional upward pressure on inflation and weighing on global economic activity. The committee is paying close attention to inflation risks.“
“The [FOMC] Seeks to achieve maximum employment and inflation at the rate of 2% in the long term “, the Federal Reserve press release adds. “In support of these objectives, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that continued increases in the target range will be appropriate.“
A U.S. senator says a hawkish central bank could trigger a recession.
In addition to the Fed’s recent rate hike, Senator Elizabeth Warren, published an article via the Wall Street Journal that claims the U.S. central bank could trigger “a devastating recession.”
“If the Fed cuts rates too much or too sharply, the resulting recession will leave millions of people – especially low-wage workers and workers of color – with lower wages or no wages at all“, Ms. Warren stated in her blog.
It’s clear #Democrats are setting up #Powell to take the fall. They will run against the #Fed as much as against #Republicans. They will blame the Fed for killing Biden’s “booming” economy in a misguided fight against #inflation they claim is caused by #Putin and corporate greed.
– Peter Schiff (@PeterSchiff) July 27, 2022
In addition, although critics say the U.S. Federal Reserve has not yet begun quantitative tightening (QT) by stopping the bank’s massive bond purchases, the central bank said Wednesday that it was a priority.
“In addition, the committee will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in plans to reduce the size of the Federal Reserve’s balance sheet that were released in May“, the Fed’s statement concluded.