Fed raises rates 3/4%, trying to curb inflation

[task0778]

The Federal Reserve has raised interest rates by 75 basis points, the single largest increase in nearly thirty years as inflation soars.

The hike to the federal funds rate – the benchmark interest rate at which banks borrow and lend money to each other overnight, affecting money supply in the economy – was announced Wednesday, after a meeting of the Federal Open Market Committee led by Chairman Jerome Powell. In the short-term, the Federal Reserve said that it would intend to bring the rate to a range of 1.5 percent to 1.75 percent.

Of the eight-member committee, seven voted in favor of the hike while one member, Esther George, President of the Federal Reserve Bank of Kansas City, voted against the increase, preferring that it be 0.5 percent instead.

The hike is the largest since 1994, when then-Chairman Alan Greenspan led a similar increase in anticipation of high inflation during an economic recovery. Wednesday’s move has considerable implications on individual borrowing in the economy and will likely lead to higher interest rates on loans for consumers and businesses.

Fed Hikes Interest Rates By 75 Points, Largest Increase Since 1994 | National Review

Chairman Jerome Powell has said that the Fed will do ‘whatever it takes’ to curb inflation and signaled that more rate hikes were to come.

www.nationalreview.com

The move comes as inflation has reached its highest level since 1982. The thing is, when you raise interest rates, like taxes you get less investment and lower economic growth. And that's just the way it is folks, cuz the costs of borrowing money goes up. And they're talking about raising interest rates again next month, either another half or 3/4% increase.

 

[Harpy Eagle]

Causing a recession to fight inflation....is this really the best we can do?

 

[Mr Natural]

It’s all that extra money we have in our pockets from Trumps tax cuts that’s causing all this inflation.

 

[1srelluc]

 

[Oddball]

Pissing on a forest fire.

 

[Oddball]

It’s all that extra money we have in our pockets from Trumps tax cuts that’s causing all this inflation.

 

[Harpy Eagle]

It’s all that extra money we have in our pockets from Trumps tax cuts that’s causing all this inflation.

That money is long gone, but all the money given out in 2020 and 2021 is coming back to roost.

 

[Care4all]

Causing a recession to fight inflation....is this really the best we can do?

Yes, from my understanding of it....

And it does work, but it is not painless, that's for sure!

 

[Mac1958]

Causing a recession to fight inflation....is this really the best we can do?

The Fed is so far behind now, it doesn't have a choice.

It's looking for a strong job market to keep things afloat, but this is 50/50 at best. A mild recession would be much better than runaway inflation.

We flood markets with trillions for 12 years, then supply chains collapse, then the Fed is asleep at the switch. Boom, here we are.

 

[BasicHumanUnit]

Gee....
This reminds me of their "magic" solution to "gun violence".....

You know.....go after the good guys......and totally ignore the real root of the problem(s)

 

[1srelluc]

Causing a recession to fight inflation....is this really the best we can do?

That question should have been asked of the fed two years ago.

 

[Care4all]

That money is long gone, but all the money given out in 2020 and 2021 is coming back to roost.

we still have a couple of thousand of it to spend, but we are going to hold off and hang on to it.... It's hard though....high inflation makes me want to BUY, at least for staples, before the prices go higher!

Deflation, would make me want to hold off BUYING because the prices could go down more....

 

[22lcidw]

Causing a recession to fight inflation....is this really the best we can do?

We were getting a slowdown. Either a quicker one with more pain and then out of it or a slower one with the pain drawn out with more suffering. Biden is going to get the blame for this. And deservedly so. His whole administration is of equity and diversity with little concern for actual talents.

 

[task0778]

It’s all that extra money we have in our pockets from Trumps tax cuts that’s causing all this inflation.

We didn't have inflation problems until last year I think, so blaming the Trump tax cuts is nuts. The real causes were all the stimulus checks and out of control gov't spending, which IMHO both parties had a hand in although clearly the democrats wanted to spend more and had to be restrained somewhat by the GOP. And then throw in the Fed's QE program which added hundreds of billions of dollars into the economy and should have been halted a lot sooner, and here we are.

 

[Mac1958]

We didn't have inflation problems until last year I think...

Inflation began in April 2020 as supply chains broke, began feeding on itself, and then the Fed thought it wise to sit on its hands.

I liked Powell, but this has been a real blunder.

 

[B. Kidd]

The Federal Reserve has raised interest rates by 75 basis points, the single largest increase in nearly thirty years as inflation soars.

The hike to the federal funds rate – the benchmark interest rate at which banks borrow and lend money to each other overnight, affecting money supply in the economy – was announced Wednesday, after a meeting of the Federal Open Market Committee led by Chairman Jerome Powell. In the short-term, the Federal Reserve said that it would intend to bring the rate to a range of 1.5 percent to 1.75 percent.

Of the eight-member committee, seven voted in favor of the hike while one member, Esther George, President of the Federal Reserve Bank of Kansas City, voted against the increase, preferring that it be 0.5 percent instead.

The hike is the largest since 1994, when then-Chairman Alan Greenspan led a similar increase in anticipation of high inflation during an economic recovery. Wednesday’s move has considerable implications on individual borrowing in the economy and will likely lead to higher interest rates on loans for consumers and businesses.

Fed Hikes Interest Rates By 75 Points, Largest Increase Since 1994 | National Review

Chairman Jerome Powell has said that the Fed will do ‘whatever it takes’ to curb inflation and signaled that more rate hikes were to come.

www.nationalreview.com

The move comes as inflation has reached its highest level since 1982. The thing is, when you raise interest rates, like taxes you get less investment and lower economic growth. And that's just the way it is folks, cuz the costs of borrowing money goes up. And they're talking about raising interest rates again next month, either another half or 3/4% increase.

The Fed is so far behind the curve in raising interest rates that they don't even see the curve!!

 

[Flopper]

Causing a recession to fight inflation....is this really the best we can do?

It's really not a reasonable choice to do nothing. High inflation drives up inflation expectations, causing workers to demand higher wages to make up for loss of purchasing power. When workers get higher wages, business raise prices and thus you get a cycle that will end in economic collapse if nothing changes. The fact that inflation is due to a number of factors, pent-up consumer demand, problems in the domestic supply chain, shortages in overseas markets due to the presence of Covid, and now a world wide shortage of oil, there is no expected natural outcome.

The FED hopes for a soft landing of the economy as they apply the brakes. We don't know if that will happen but it's pretty certain that the alternative of doing nothing will have a worse outcome.

 

[B. Kidd]

Part of the problem is that the Fed (and our Gov't) mis-pegs the CPI.
They still use an outdated CPI formula that is 50 years old that dates back to the '70's.
This formula results in mis-stating today's inflationary rate at 8.6%, when in reality, according to some of our best economists, the real inflationary rate today is 17% or >.

Therefore, the old axiom prevails of 'garbage in = garbage out'.

Stay tuned. I'll soon tell you how real bad the economy is gonna really get.

As usual, yours truly, Kidd.

 

[easyt65]

Largest Rate Hike In Decades To Attempt To Combat 'Transitory' Bidenflation, Worst Economy Fueled By Worst, Failed Policies In Decades.

LET'S GO, BRANDON!

Fed raises interest rate by 75-basis points in historic move to fight inflation

The Federal Reserve on Wednesday approved the largest interest rate hike since 1994 as officials try to tame runaway inflation, which surged to another 40-year high in May.

www.foxbusiness.com

 

[Tom Paine 1949]

It's really not a reasonable choice to do nothing. High inflation drives up inflation expectations, causing workers to demand higher wages to make up for loss of purchasing power. When workers get higher wages, business raise prices and thus you get a cycle that will end in economic collapse if nothing changes. The fact that inflation is due to a number of factors, pent-up consumer demand, problems in the domestic supply chain, shortages in overseas markets due to the presence of Covid, and now a world wide shortage of oil, there is no expected natural outcome.

The FED hopes for a soft landing of the economy as they apply the brakes. We don't know if that will happen but it's pretty certain that the alternative of doing nothing will have a worse outcome.

Best comment so far. Well balanced and economically literate. Few people here want to examine the real economic choices available to the Fed or the real causes of worldwide inflation.

Controlling this inflation while preventing a major recession may prove impossible with traditional Fed tools. If the Ukraine War worsens, or the Cold War with China turns hot or ends with a collapse in world trade and a series of new proxy wars, there is nothing any U.S. Party or the Fed itself will be able to do to stop a huge decline in standards of living.

Assuming some mitigation of the disruptive “external factors” above, which Powell also discretely talked about in his announcement of the 75% rate increase, the inflationary spiral can most likely be stopped sooner rather than later (in a year or less). But U.S. corporate finance capitalism is sytemically set up so that the very rich will end up still richer and the poor and less skilled working people worse off.

The Fed is worried also about systemic credit problems which may develop in the next period and can cause a real crash as threatened in 2007-2008, and of course it is prejudiced toward preventing major asset price declines which hurt the wealthy and make such a collapse more likely. But that is a much more complicated problem to tackle.

By the way, I think there is very little chance that wages will rise to match inflation or set off a wage-price spiral as in the seventies, given that the U.S. today totally lacks a strong domestic union movement.