Fed increases interest rates by.75 of a percentage point to combat inflation
Federal Reserve Chairman Jerome Powell (R) visited the IMF’s headquarters in Washington, D.C. The Federal Reserve is anticipated to increase interest rates by another 0.75 percentage points on Wednesday in an effort to reduce US inflation.
The Federal Reserve agreed to increase interest rates by 0.75 percentage points, or 75 basis points, on Wednesday afternoon. The Fed cited rising inflationary pressure as the cause. The supply and demand imbalances brought on by the epidemic, rising food and energy prices, and broader pricing pressures, the Fed said in a statement, “Inflation remains elevated.”
To achieve a posture of monetary policy that is sufficiently restrictive to return inflation to 2% over time, it “anticipates that continued rises in the target range will be warranted.”
Although the Fed acknowledged that inflation is still a problem, recent data suggests that expenditure and production are growing only modestly. The unemployment rate has been low and job gains have been significant in recent months.
In addition, the Fed statement claimed that the conflict between Russia and Ukraine is “producing enormous human and economic misery” and that it is adding to the pressure on inflation along with other connected events.
Greg McBride, the chief financial analyst at Bankrate, stated that interest rates have climbed rapidly and that they are still rising. Even once we start to see some improvement, it will take some time for inflation to decline from these high levels.
The increase on Wednesday would raise the federal funds rate to a range of 3.74% to 4%, marking the fourth consecutive 75-basis-point increase this year. The Fed stated that it is “firmly committed to restoring inflation to 2%” and that it will continue to closely evaluate the state of the economy.
The Fed last increased interest rates in September. At the time, Powell declared that price stability was “the cornerstone of our economy” and that the central bank was committed to restoring it. Inflation continued to rise at a rapid clip in September, according to a Bureau of Economic Analysis report released last week, with the personal consumption expenditures index climbing 6.2% from a year earlier.
According to Julian Emanuel, head of equity, derivatives, and quantitative strategy at Evercore ISI, “the market is quite concentrated on the fact that there will be 75 [basis points] in November, 50 on December, 25 on February 1, and then possibly another 25 in March.” Therefore, the market already believes that this will occur, and in my opinion, there is no way that the results of his press conference will be any more dovish than that.
In anticipation of the Fed’s announcement regarding the interest rate hike, U.S. equities opened lower on Wednesday. In reaction to increased mortgage rates, sales of newly built homes fell 10.9% in September and were down 17.6% from a year earlier.
