Live updates: Fed raises interest rates by 0.75 points to fight inflation

Live updates: Fed raises interest rates by 0.75 points to fight inflation

Published September 21, 2022
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The Federal Reserve raised interest rates again by 0.75 percentage points in its latest fight against inflation, despite growing concerns that the central bank is slowing the economy so aggressively that households and businesses will soon feel the pain.

The rate increase, announced Wednesday at the end of the Fed’s two-day policy meeting, was the fifth of the year and the third consecutive three-quarter point hike. With few signs that its actions are working yet, the Fed has ramped up its moves to cool demand and keep prices from rising. Officials are forging ahead despite the risk that the job market softens or the economy goes into recession.

Indeed, new economic projections released Wednesday afternoon show officials expect the unemployment rate, which is currently 3.7 percent, will end the year at 3.8 percent, before rising to 4.4 percent by the end of 2023. Generally, if the unemployment rate climbs by a half-percentage point, a recession follows.

The Fed also significantly downgraded its forecasts for economic output. The last time the Fed released projections, in June, it expected the economy to grow 1.7 percent in 2022. That figure was revised down to 0.2 percent. Officials also expect inflation will remain high at the end of the year — 5.4 percent using the Fed’s preferred gauge — before falling closer to normal levels next year.

On future rate hikes, Fed officials penciled in another increase of three-quarters of a percentage point and one of a half-percentage point for the two remaining meetings of the year, though any actions depend on what unfolds in the economy. The projections also show rates climbing slightly next year, before cuts in 2024.

“Recent indicators point to modest growth in spending and production,” bank officials said in a statement announcing the rate hike. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

These big actions bring big risks that the Fed could soon force a recession. So far, the job market and consumer spending — two crucial economic engines — have stayed resilient through the Fed’s sharp rate hikes, and Americans may even be feeling better about inflation. But interest rate increases operate with a lag, and before too long the full weight of what the bank has already done may become clear. The markets have grown increasingly anxious about a recession, and stocks have tumbled in recent weeks on investor anxiety that the Fed won’t ease up on its policies anytime soon.

Here’s what to know

The Federal Reserve’s move to raise rates again on Wednesday could mean even higher mortgage rates in the coming weeks.

Borrowing costs have already doubled in the past nine months as the central bank takes aggressive action to slow inflation. The interest rate for a 30-year fixed mortgage, the most popular home loan, spiked above 6 percent last week for the first time in 14 years, according to data from Freddie Mac.

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Mortgage rates surpass 6 percent for the first time since 2008

Although the latest rate hike probably won’t immediately affect mortgages — housing experts say lenders had already raised rates for loans in anticipation of the Fed’s latest move — there are likely to be ripple effects down the line. The central bank influences borrowing costs across the economy by controlling the Federal Funds Rate, which is the interest rate banks use to lend money to each other overnight. That rate, currently between 3 percent and 3.25 percent, is at a 14-year high — and the Fed is pushing it higher.

Along with its interest rate announcement, the Fed today will release its quarterly summary of economic projections, a map to policymakers’ expectations for the road ahead.

Investors pore over these forecasts, the most authoritative public indications of Fed officials’ thinking, in hopes of unearthing clues about future monetary policy decisions.

There’s just one problem: The Fed forecasts are often wrong.

In December 2021, for example, the median Fed official’s projection called for the central bank’s preferred measure of inflation — the personal consumption expenditures (PCE) index — to rise by 2.6 percent this year.

The expected Federal Reserve rate hike is part of a broad trend that is making credit more expensive throughout the global economy.

Over the past two months, central banks have enacted more jumbo rate hikes of at least three-quarters of a point than ever before, according to Citigroup.

The Fed is among at least eight central banks expected to raise borrowing costs this week, aiming to vanquish the inflationary pressures that have accompanied the resumption of pre-pandemic activities. On Tuesday, Sweden’s Riksbank raised rates by a full point and said additional increases would follow.

The Federal Reserve’s four rate increases this year and Wednesday’s upcoming fifth increase have been major factors in sending both stocks and bonds into bear markets.

However, tens of millions of people are getting a little-recognized benefit from these rate increases. I’m talking about people who own money market mutual funds, whose assets consist of high-quality, short-term IOUs from the federal government, banks and other financial institutions.

The interest that holders of these funds are getting these days is more than 100 times — or 10,000 percent — above what they were earning at the end of last year.

This is an excerpt from a full story.

After spiraling to new heights during the pandemic, the housing market is finally starting to cool. Data on how fast homes have sold over the past decade shows how the market took off in the summer of 2020 and began to wind back down this spring.

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“Affordability challenges are the main driver of the housing slowdown,” said Jeff Tucker, senior economist at Zillow.

Buyers are pulling back from the market as monthly mortgage payments climb out of reach for many households, driven by rising interest rates and record prices. In turn, that’s putting pressure on sellers to cut their prices, accept lower offers or rent their homes rather than list them for sale. Both buyers and sellers are expressing uncertainty about where home values will settle.

This is an excerpt from a full story.

The Fed is about to hike interest rates for the fifth time since March. Why are bank officials doing that, and what influence do higher rates have on the economy?

This is an excerpt from a full story.

The labor market has remained a bright spot in the economy, despite growing concerns that the Fed’s interest rate hikes could spark a recession. The United States added 315,000 jobs last month — far fewer than in July but an indication that at least for now, American workers continue to be flush with employment opportunities. There are nearly two job openings for every job seeker.

The combination of a tight labor market and widespread worker shortages have helped fuel the ongoing wave of labor activism. Last week, 57,000 railroad workers threatened to strike over staffing-related concerns, in a shutdown that would have paralyzed much of the U.S. economy, and 15,000 nurses walked off the job in Minnesota to protest being overworked.

Everyone is wondering whether the economy is going into a recession or whether we’re already in one.

But what causes a recession?

A recession is caused when a chain of events picks up momentum, like a line of dominoes, and does not stop until the economy shrinks. Each event is connected to something that happened before and something that will happen in the future. If the price of a hamburger goes up, you might stop buying hamburgers. This would affect a restaurant, and that would affect a server. There are many interconnected chains like this throughout the economy.

This is an excerpt from a full story.

The Fed has been aggressively hiking interest rates this year in hopes of eventually cooling the economy enough to tame rapidly rising prices.

While that hasn’t quite happened yet, there is one bit of good news for the central bank: Americans expectations for where inflation will be a year from now have been coming down.

Median inflation expectations for the next year fell to 4.6 percent, the lowest reading since last September, in the latest results from the University of Michigan’s closely-watched consumer sentiment survey, released Friday. Long-term, Americans now expect inflation to settle at 2.8 percent, marking a 14-month low.