Fed raises interest rates, pledges more hikes amid rampant inflation; warns of recession

The Federal Reserve raised benchmark interest rates by another three-quarters of a percentage point and indicated it will keep hiking well above the current level as it attempts to tamp down rampant U.S. inflation, which running near its highest levels in forty years. Fed officials signaled the intention of continuing to hike until the funds level hits a “terminal rate,” or end point, of 4.6% in 2023. Fed Chairman Jerome Powell warned the policies may lead to the official declaration of recession.

Inflation

Jeff Cox for CNBC:

The Federal Reserve on Wednesday raised benchmark interest rates by another three-quarters of a percentage point and indicated it will keep hiking well above the current level.

In its quest to bring down inflation running near its highest levels since the early 1980s, the central bank took its federal funds rate up to a range of 3%-3.25%, the highest it has been since early 2008, following the third consecutive 0.75 percentage point move.

Along with the massive rate increases, Fed officials signaled the intention of continuing to hike until the funds level hits a “terminal rate,” or end point, of 4.6% in 2023. That implies a quarter-point rate hike next year but no decreases… Powell and his colleagues have emphasized in recent weeks that it is unlikely rate cuts will happen next year, as the market had been pricing.

Federal Open Market Committee members indicate they expect the rate hikes to have consequences… In their quarterly updates of estimates for rates and economic data, officials coalesced around expectations for the unemployment rate to rise to 4.4% by next year from its current 3.7%. Increases of that magnitude often are accompanied by recessions.

Along with that, they see GDP growth slowing to 0.2% for 2022, rising slightly in the following years to a longer-term rate of just 1.8%. The revised forecast is a sharp cut from the 1.7% estimate in June and comes following two consecutive quarters of negative growth, a commonly accepted definition of recession.

Powell conceded that a recession is possible, particularly if the Fed has to keep tightening aggressively. “No one knows whether this process will lead to a recession or, if so, how significant that recession will be,” he said.

MacDailyNews Take: As we wrote last week when the latest U.S. inflation data sent the Dow plummeting 1,200 points: After drifting around aimlessly for far too long on the U.S.S. Transitory, the delusional Fed is laughably too little, too late.

Catching up will be difficult. But, hey, good luck on that soft landing. 🙄

In January, Interactive Brokers founder Thomas Peterffy said, “1% or 2% [in interest rate hikes] doesn’t mean anything. If they really wanted to stop inflation, they would have to raise rates to 4%, 5%, 6%.”

The Fed’s current target interest rate range is 3.00% to 3.25%.

‘Tis best to get a handle on inflation, if you know how, while you still can.MacDailyNews, May 11, 2021

Stop the misguided crusade against domestic energy production and profligate federal spending and inflation will be stopped dead in its tracks. It’s not difficult.MacDailyNews, May 11, 2022

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26 Comments

    1. Its the NBER who makes the official call … and they’ve not called it (yet).

      In any event, its a moot point: we are where we are and there’s very mixed signals as to if things are ‘good’ or ‘bad’ (or ‘meh’), depending on which metric and which market segment we’re looking at.

      Likewise, we got to where we are today because of huge CoVid stimulus starting in 2020 (yes, Trump) and continuing into the first part of 2021 (Biden): what needs to be considered is what the alternatives were to these stimulus payments — at the time that their decision was made.

      That decision was a ‘pay me now or pay me later’ one, as economists knew from the start that stimulus actions have a trade-off of higher inflationary pressures later. The question is simply if the near-term pain reduction was worth it or not. Given that the risk was of a 1929-esque economic crash with 30% unemployment that would require a decade to claw back from, a year (or three) of sub-10% inflation isn’t that bad of a trade-off macroscopically.

  1. The Fed doesn’t have to be the main army in a war on inflation, but thus far the Fed is the only army reporting for duty. Congress and the White House could fight inflation by cutting down on government spending that forces monetary expansion, and they could also adopt supply-side economics to allow for a burst of production that will catch up to demand and create organic price equilibrium.

    This is so obvious that even the Left is starting to beg for supply-side policies at the Center for American Progress… When John Podesta’s outfit begins clamoring for supply-side economics, it’s pretty clear just how extreme and incompetent Joe Biden and Democrats have become.

    Without that, Powell only has the sledgehammer of monetary tightening and the destruction of demand as his weapon against inflation. Unfortunately, Powell and the Fed waited months too long to get a start on that process, which means the pain will get greater. The current monthly PCE index of inflation — the Fed’s key gauge — is still at 6.3%, well above the current benchmark interest rate and well above the projected rate at the end of the year. Until that inflation rate gets at least in range of the interest rate (or vice versa), inflation will continue to cook and more rate hikes will be necessary.

    In other words, this looks like a long and recessionary war, unless Democrats wake up and reverse their current spending and demand-stimulating policies. And that won’t happen until at least after the midterms.

    Ed Morrissey, September 21, 2022

    1. And you’ve been artificially inflating your intelligence for years!

      ‘What difference, at this point, does it make?’ – Hillary Clinton

            1. Definitely not the $15.00 an hour fast food crowd, as I would demand excellence in getting orders right, which, as anyone knows, is not a high priority from employees who aren’t worth what they are currently receiving per hour!

        1. Pennsylvania County Sues Dominion Voting Systems for ‘Unauthorized Python Script’ & ‘Foreign IP Address’

          Fulton County, Pennsylvania filed a lawsuit against Dominion Voting Systems this morning for a “breach of contract”.

          The county says that it became “aware of severe anomalies” with Dominion Voting Systems during the 2020 election after it was unable to reconcile “voter data with votes actually cast and counted”.

          https://kanekoa.substack.com/p/pennsylvania-county-sues-dominion

    2. Prove it!

      Almost seven years with Democrat politicians, FBI, Justice Dept., AGs, Governors and 99% of the lying media after him 24/7. The latest ATTACK, gee what a surprise, like this has not been happening for years. Devious Democrat detractors so DESPERATE to keep him from running in 2024. The citizens see it for what it is, whether he made mistakes or not. The culprits better CONTINUE SCARED, cause the truth will eventually prevail and reckoning is coming…

        1. OK cherry picker, a couple doses of REALITY is in order.

          James won election election three years ago on a platform to take down the president in the heat of the wasted Mueller investigation. What a most remarkable unbiased example of blind justice CAMPAIGNING that will go down in the history books. /s

          From Newsweek hours ago: “The survey [Trafalgar Group] of 1,091 likely voters conducted between August 31 and September 1 revealed that James is behind Republican candidate Henry by 44.2 percent to 43 percent.”

          In a Truth Social post on Wednesday, Donald Trump dismissed the suit as “another Witch Hunt by a racist Attorney General.” He also suggested the probe was conducted by James to boost her chances of re-election as New York’s attorney general in November.

          Seems most everyone knows this is a political stunt filing a nuisance civil suit. Other Democrat prosecutors with the same evidence dropped filing criminal charges many months ago. Talk about grasping for straws knowing it will make headlines that fool some people — this woman is an ABSOLUTE DISGRACE to justice…

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