In order to stabilize American economic growth and tame inflation, the U.S. Federal Reserve raised its federal funds rates by 75 basis points on Wednesday. The recent rate hike is the U.S. central bank’s third rate increase after increasing the benchmark rate by 50 bps last March.
Fed Hikes Rate by 75 bps for a Second Time in a Row to Tame Inflation, Central Bank Says ‘Inflation Remains Elevated’
The U.S. Federal Reserve raised its federal funds rate by 75 basis points Wednesday at 2:00 PM (ET) to combat rising inflation. It was the second increase of 75 bps in a row.
“Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low,” the Fed said on Wednesday in a press statement. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
The Fed raised its rates today by 75bp, which is the same rate it reached in 2018 prior to caving.
9 trillion dollars in new debt have been created since then.— Sven Henrich (@NorthmanTrader) July 27, 2022
This move is in line with the Consumer Price Index (CPI), which recently reported that CPI data showed a 9.1% increase year-over-year. June’s CPI data had risen at the fastest yearly rate since 1981.
It also comes after the recent debate over the technical definition of a “recession.” This past week the White House published two blog posts that claim a second consecutive quarter of negative gross domestic product (GDP) does not indicate the U.S. is in a recession.
One of the Biden administration’s blog posts featured Treasury secretary Janet Yellen who confirmed that she believes it is not the “technical definition” of a recession despite websites like Investopedia defining it as a recession and economic resources and business cycle textbooks.
Powell’s first sentence:
To bring down inflation, the Fed works quickly.
— Callie Cox (@callieabost) July 27, 2022
Following the remarks from Yellen and White House regarding a recession the economist Paul Krugman said “ignore the two-quarter rule… We might have a recession, but we aren’t in one now,” in a recently published blog post. After Krugman’s apology for wrongly predicting inflation, this is what Krugman said.
During this month’s Fed meeting, the U.S. central bank claimed Russia is hurting the global economy. “Russia’s war against Ukraine is causing tremendous human and economic hardship,” the Federal Open Market Committee (FOMC) members said on Wednesday. “The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The committee is highly attentive to inflation risks.”
“The [FOMC] seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the Federal Reserve’s press statement added. “In support of these goals, 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 ongoing increases in the target range will be appropriate.”
Massachusetts Senator: A Hawkish Central Bank could Spark a Recession
In addition to the Fed’s recent rate hike, senator Elizabeth Warren (D-Mass), published a blog post via the Wall Street Journal that says the U.S. central bank could trigger “a devastating recession.”
“If the Fed cuts too much or too abruptly, the resulting recession will leave millions of people—disproportionately lower-wage workers and workers of color—with smaller paychecks or no paycheck at all,” Warren’s op-ed details.
It’s obvious #DemocratsAre you setting up #PowellThey will take the fall. They’ll run against you #FedEqually as important as the opposite #Republicans. They’ll blame the Fed for destroying Biden’s “booming” economy during a misguided war against #inflationThey claim it is due to #PutinAnd corporate greed.
— Peter Schiff (@PeterSchiff) July 27, 2022
Moreover, despite critics saying the U.S. Federal Reserve has not yet started quantitive tightening (QT) by halting the bank’s massive bond purchases, the central bank said on Wednesday that this was a priority.
“In addition, the committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the plans for reducing the size of the Federal Reserve’s balance sheet that were issued in May,” the Fed’s statement concludes.
How do you feel about the Fed raising the federal funds rates by 75 basis points on Wednesday afternoon. Please comment below on your views.
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