POLITICS + GOVERNMENT

Fed unleashes another big rate hike in bid to curb inflation

Jul 27, 2022, 12:16 PM | Updated: Jan 5, 2023, 2:44 pm

FILE - Federal Reserve Chairman Jerome Powell speaks to the Senate Banking, Housing and Urban Affai...

FILE - Federal Reserve Chairman Jerome Powell speaks to the Senate Banking, Housing and Urban Affairs Committee, as he presents the Monetary Policy Report to the committee on Capitol Hill, on June 22, 2022, in Washington. With inflation raging at a four-decade high and the job market strong, the Fed is under pressure to raise interest rates aggressively. (AP Photo/Manuel Balce Ceneta, File)

(AP Photo/Manuel Balce Ceneta, File)

WASHINGTON (AP) — The Federal Reserve on Wednesday raised its benchmark interest rate by a hefty three-quarters of a point for a second straight time in its most aggressive drive in three decades to tame high inflation.

The Fed’s move will raise its key rate, which affects many consumer and business loans, to a range of 2.25% to 2.5%, its highest level since 2018.

The central bank’s decision follows a jump in inflation to 9.1%, the fastest annual rate in 41 years, and reflects its strenuous efforts to slow price gains across the economy. By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

The Fed is tightening credit even while the economy has begun to slow, thereby heightening the risk that its rate hikes will cause a recession later this year or next. The surge in inflation and fear of a recession have eroded consumer confidence and stirred public anxiety about the economy, which is sending frustratingly mixed signals.

RELATED: Fed begins inflation fight with key rate hike, more to come

With the November midterm elections nearing, Americans’ discontent has diminished President Joe Biden’s public approval ratings and increased the likelihood that the Democrats will lose control of the House and Senate.

The Fed’s moves to sharply tighten credit have torpedoed the housing market, which is especially sensitive to interest rate changes. The average rate on a 30-year fixed mortgage has roughly doubled in the past year, to 5.5%, and home sales have tumbled.

At the same time, consumers are showing signs of cutting spending in the face of high prices. And business surveys suggest that sales are slowing.

The central bank is betting that it can slow growth just enough to tame inflation yet not so much as to trigger a recession — a risk that many analysts fear may end badly.

On Thursday, when the government estimates the gross domestic product for the April-June period, some economists think it may show that the economy shrank for a second straight quarter. That would meet one longstanding assumption for when a recession has begun.

But economists say that wouldn’t necessarily mean a recession had started. During those same six months when the overall economy might have contracted, employers added 2.7 million jobs — more than in most entire years before the pandemic. Wages are also rising at a healthy pace, with many employers still struggling to attract and retain enough workers.

Still, slowing growth puts the Fed’s policymakers in a high-risk quandary: How high should they raise borrowing rates if the economy is decelerating? Weaker growth, if it causes layoffs and raises unemployment, often reduces inflation on its own.

That dilemma could become an even more consequential one for the Fed next year, when the economy may be in worse shape and inflation will likely still exceed the central bank’s 2% target.
“How much recession risk are you willing to bear to get (inflation) back to 2%, quickly, versus over the course of several years?” asked Nathan Sheets, a former Fed economist who is global chief economist at Citi. “Those are the kinds of issues they’re going to have to wrestle with.”

Economists at Bank of America foresee a “mild” recession later this year. Goldman Sachs analysts estimate a 50-50 likelihood of a recession within two years.

Among analysts who foresee a recession, most predict that it will prove relatively mild. The unemployment rate, they note, is near a 50-year low, and households are overall in solid financial shape, with more cash and smaller debts than after the housing bubble burst in 2008.

Fed officials have suggested that at its new level, their key short-term rate will neither stimulate growth nor restrict it – what they call a “neutral” level. Chair Jerome Powell has said the Fed wants its key rate to reach neutral relatively quickly.

Should the economy continue to show signs of slowing, the Fed may moderate the size of its rate hikes as soon as its next meeting in September, perhaps to a half-point. Such an increase, followed by possibly quarter-point hikes in November and December, would still raise the Fed’s short-term rate to 3.25% to 3.5% by year’s end — the highest point since 2008.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

Politics + Government

the front of a homeless shelter, budget plan utah...

Eric Cabrera

Salt Lake business leaders show support for governor’s budget plan to help homeless people in Utah

Leaders who approve of the budget plan said they had seen a huge difference in downtown Salt Lake over the past six months.

7 hours ago

nikki haley shown, she will be in utah next week...

Bridger Beal-Cvetko, KSL.com

Nikki Haley to visit Utah next week ahead of Super Tuesday presidential caucus votes

Nikki Haley plans to hold a rally at the Noorda Center for the Performing Arts on Utah Valley University's campus in Orem on the morning of Feb. 28.

9 hours ago

solar panel shown, solar power in utah is the major focus of a proposed law...

Heather Peterson

Bill focusing on solar power customers in Utah gets favorable recommendation in Senate committee

Right now, Rocky Mountain Power only credits solar power customers in Utah about 5 cents for the power they send back to the grid.

10 hours ago

a woman on her phone...

Lindsay Aerts, KSL TV

Utah Legislature approves candidate signature gathering change

A shift is coming for candidates who have to gather signatures to get on the ballot, an app allowing them to verify a voter's eligibility in real-time.

10 hours ago

Members of the Palestinian civil defense extinguish a fire in a building in the east of Rafah, the ...

Richard Roth and Tara John, CNN

US proposes a ‘temporary ceasefire’ in Gaza in draft UN resolution

The United States has proposed a United Nations Security Council resolution calling for a temporary ceasefire in Israel’s war against Hamas

18 hours ago

Natural Resources...

Alexandrea Bonilla

Utah Division of Natural Resources wants to combine police agencies

The Utah Division of Natural Resources is seeking to combine its four law enforcements agencies into one unit.

19 hours ago

Sponsored Articles

Mother and cute toddler child in a little fancy wooden cottage, reading a book, drinking tea and en...

Visit Bear Lake

How to find the best winter lodging in Bear Lake, Utah

Winter lodging in Bear Lake can be more limited than in the summer, but with some careful planning you can easily book your next winter trip.

Happy family in winter clothing at the ski resort, winter time, watching at mountains in front of t...

Visit Bear Lake

Ski more for less: Affordable ski resorts near Bear Lake, Utah

Plan your perfect ski getaway in Bear Lake this winter, with pristine slopes, affordable tickets, and breathtaking scenery.

front of the Butch Cassidy museum with a man in a cowboy hat standing in the doorway...

Bear Lake Convention and Visitors Bureau

Looking Back: The History of Bear Lake

The history of Bear Lake is full of fascinating stories. At over 250,000 years old, the lake has seen generations of people visit its shores.

silhouette of a family looking over a lake with a bird in the top corner flying...

Bear Lake Convention and Visitors Bureau

8 Fun Activities To Do in Bear Lake Without Getting in the Water

Bear Lake offers plenty of activities for the whole family to enjoy without having to get in the water. Catch 8 of our favorite activities.

Wellsville Mountains in the spring with a pond in the foreground...

Wasatch Property Management

Advantages of Renting Over Owning a Home

Renting allows you to enjoy luxury amenities and low maintenance without the long-term commitment and responsibilities of owning a home.

Clouds over a red rock vista in Hurricane, Utah...

Wasatch Property Management

Why Southern Utah is a Retirement Paradise

Retirement in southern Utah offers plenty of cultural and recreational opportunities. Find out all that this region has to offer.

Fed unleashes another big rate hike in bid to curb inflation