Fed Seeks To Cut Inflation With key Rate Hike
The Federal Reserve launched a high-risk effort Wednesday (Thursday, Mar. 17, 2022, in Manila) to tame the worst inflation since the early 1980s, raising its benchmark short-term interest rate and signaling up to six additional rate hikes this year, Christopher Rugaber reported for the Associated Press (AP).
Photo Insert: The central bank, in a policy statement, along with quarterly projections and remarks by Chair Jerome Powell at a news conference, pointed to a somewhat more aggressive approach to rate hikes than many analysts had expected.
The Fed’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 followed the recovery from the recession. The rate hikes will eventually mean higher loan rates for many consumers and businesses.
The central bank, in a policy statement, along with quarterly projections and remarks by Chair Jerome Powell at a news conference, pointed to a somewhat more aggressive approach to rate hikes than many analysts had expected.
The projections showed that seven of the central bank’s 16 policymakers favor at least one half-point rate hike this year, suggesting that such a large increase “is a live possibility,” said Michael Feroli, an economist at JPMorgan Chase.
At his news conference, Powell stressed his confidence that the economy is strong enough to withstand higher interest rates. But he also made clear that the Fed is focused on doing whatever it takes to reduce inflation, over time, to its 2% annual target.
Otherwise, Powell warned, the economy might not sustain its recovery from the pandemic recession. The Fed also released a set of quarterly economic projections Wednesday that underscored the potential for extended interest rate increases in the months ahead.
Seven hikes would raise its short-term rate to between 1.75% and 2% at the end of 2022. Fed officials also forecast four more rate increases in 2023, which would boost its benchmark rate to 2.8%. That would be the highest level since March 2008. Borrowing costs for mortgage loans, credit cards, and auto loans will likely rise as a result.