The Federal Reserve on Wednesday intensified its drive to tame high inflation by raising its key interest rate and signaling more large rate increases to come that could raise the risk of another recession.
A series of sizable increases would heighten borrowing costs for consumers and businesses, likely leading to an economic slowdown and raising the risk of a recession.
The job growth in May was high enough to keep the Federal Reserve on track to pursue what’s likely to be the fastest series of rate hikes in more than 30 years.
Federal Reserve officials agreed when they met earlier this month that they may have to raise interest rates to levels that would weaken the economy as part of their drive to curb inflation, which is near a four-decade high.
ARMs made up 13% of all home loans by dollar volume in March, their highest share since January 2020, according to CoreLogic.
Chairman Jerome Powell on Tuesday underscored the Federal Reserve’s determination to keep raising interest rates until there is clear evidence inflation is steadily falling—a high-stakes effort that carries the risk of causing an eventual recession.
The 80-19 vote reflected broad support in Congress for the Fed’s drive to combat surging prices through a series of sharp interest rate hikes that could extend well into next year. The Fed’s goal is to slow borrowing and spending enough to ease the inflation pressures.
Average long-term U.S. mortgage rates are continuing to rise, with interest on the key 30-year loan at its highest level since 2009.
The observations came in the Federal Reserve’s semiannual Financial Stability Report that looks at trends in trading and investing as well as broad economic issues.
Fed officials raised interest rates by a half-point last week and Chairman Jerome Powell signaled they would continue at that pace at meetings in June and July to curb inflation.
Economists and investors foresee the fastest pace of Federal Reserve rate increases since 1989. The result could be much higher borrowing costs for households well into the future.
The Federal Reserve intensified its fight against the worst inflation in 40 years by raising its benchmark short-term interest rate by a half-percentage point Wednesday—its most aggressive move since 2000—and signaling further large rate hikes to come.
Federal Reserve Chairman Jerome Powell said that if necessary, the central bank would be open to raising rates by a comparatively aggressive half-point at multiple Fed meetings. The Fed hasn’t raised its benchmark rate by a half-point since May 2000.
With inflation raging at four-decade highs, economists and investors expect the central bank to enact the fastest pace of rate hikes since 2005. That would mean higher borrowing rates well into the future.
The Federal Reserve’s quarter-point hike in its key rate, which it had pinned near zero since the pandemic recession struck two years ago, marks the start of its effort to curb the high inflation that has followed the recovery from the recession.
The Federal Reserve on Wednesday will launch one of the most difficult tasks a central bank can attempt: Raise borrowing costs enough to slow growth and tame high inflation, but not so much as to topple the economy into recession.
Investors have ramped up expectations for an aggressive Fed posture in the face of the highest inflation in four decades. But the economists say the outlook has become muted by uncertainty over Ukraine, sanctions and surging commodities prices.
Chairman Jerome Powell said Wednesday that he supports a traditional quarter-point increase in the Federal Reserve’s benchmark short-term interest rate when the Fed meets later this month, rather than a larger increase that some of its policymakers have proposed.
The debate over how quickly to raise interest rates is being closely watched by financial markets and also could have an impact on the broader economy.
Federal Reserve Governor Michelle Bowman said Monday that she was open to lifting interest rates by more than the traditional quarter-point at the central bank’s next meeting in March.
