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    Fed decision July 2022: Fed hikes interest rates by 0.75 percentage point

    The Federal Open Market Committee released its post-meeting statement Wednesday on what it will be doing with interest rates.

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    Fed hikes interest rates by 0.75 percentage point for second consecutive time to fight inflation

    PUBLISHED WED, JUL 27 20222:00 PM EDTUPDATED WED, JUL 27 20223:46 PM EDT

    Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM WATCH LIVE KEY POINTS

    The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a range of 2.25%-2.5%.

    Chair Jerome Powell said there will be a point where the Fed starts to slow hikes to assess their impact.

    “We actually think we need a period of growth below potential in order to create some slack,” he said.

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    Federal Reserve raises rates by 75 basis points as it ramps up fight against inflation

    The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

    In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

    While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

    Markets largely expected the move after Fed officials telegraphed the increase in a series of statements since the June meeting. Stocks hit their highs after Fed Chair Jerome Powell left the door open about its next move at the September meeting, saying it would depend on the data. Central bankers have emphasized the importance of bringing down inflation even if it means slowing the economy.

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    With inflation still high, the Fed may be a long way from where it can stop hiking

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    “As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” Powell said.

    WATCH NOW VIDEO03:38

    Fed’s Powell: We’ll be making rate hike decisions on a meeting-by-meeting basis

    In its post-meeting statement, the rate-setting Federal Open Market Committee cautioned that “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 committee added, using language similar to the June statement. Officials again described inflation as “elevated” and ascribed the situation to supply chain issues and higher prices for food and energy along with “broader price pressures.”

    Powell said he does not think the economy is in recession, though growth was negative in the first quarter and was expected to be barely positive in the second quarter.

    “Think about what a recession is. It’s a broad-based decline across many industries that’s sustained more than a couple of months. This doesn’t seem like that now,” he said. “The real reason is the labor market has been such a strong signal of economic strength that it makes you question the GDP data.”

    The rate hike was approved unanimously. In June, Kansas City Fed President Esther George dissented, advocating a slower course with a half percentage point increase.

    The increases come in a year that began with rates floating around zero but which has seen a commonly cited inflation measure run at 9.1% annually. The Fed aims for inflation around 2%, though it adjusted that goal in 2020 to allow it to run a bit hotter in the interest of full and inclusive employment.

    Powell said the Fed is “strongly committed” to reducing inflation and said that could come with a cost to general economic growth and the labor market in particular.

    “We think it is necessary to have growth slow down. Growth is going to be slowing down this year for a couple of reasons,” he said. The economy, he added, probably will grow below its long-run trend for a period of time. “We actually think we need a period of growth below potential in order to create some slack.”

    In June, the unemployment rate held at 3.6%, close to full employment. But inflation, even by the Fed’s standard of core personal consumption expenditures, which was at 4.7% in May, is well off target.

    WATCH NOW VIDEO01:32

    The real question is are we on a path to 2% inflation, says Jerome Powell

    स्रोत : www.cnbc.com

    As Inflation Looms, the Fed Is Expected to Raise Rates by 75 Basis Points

    Inflation rose more than expected in August, which means another rate hike is more than likely.

    Money Banking

    As Inflation Looms, the Fed Is Expected to Raise Rates by 75 Basis Points

    Marcos Cabello

    Sept. 13, 2022 8:59 a.m. PT

    6 min read

    US Federal Reserve Chair Jerome Powell said there is "significant additional tightening in the pipeline."

    Kevin Dietsch/Getty Images

    This story is part of Recession Help Desk, CNET's coverage of how to make smart money moves in an uncertain economy.

    What's happening

    Though inflation has slowed slightly over the past year, it still remains high. The Federal Reserve is expected to raise rates next week in an effort to cool stubborn inflation.

    Why it matters

    If the Fed continues to drive up interest rates, there will be consequences -- most likely an uptick in unemployment, and an increase in interest rates for mortgages, credit cards and loans.

    What it means for you

    Soaring consumer prices, tumbling stocks, increased costs to borrow money and the threat of layoffs could prove particularly devastating for low- and middle-income Americans.

    The Federal Reserve is expected to raise rates next week for the fifth time this year, in an effort to curtail runaway inflation.

    In August, inflation cooled slightly year-over-year, dipping to an 8.3% yearly increase, down from June's record high 9.1% reading, according to the latest Consumer Price Index report. Despite yearly increases slowing, inflation rose by 0.1% from July to August, defying expert predictions that inflation would decrease month-to-month.

    When the Fed meets next week, it is expected to raise rates by another 75 basis points, according to a Reuters poll of economists.

    "We are highly attentive to inflation risks and determined to take the measures necessary to return inflation to our 2% longer run goal," Powell said during July's press conference. "This process is likely to involve a period of below-trend economic growth, and some softening in labor market conditions. But such outcomes are likely necessary to restore price stability and to set the stage for maximum employment and stable prices over the longer run."

    Raising interest rates is the main action the Fed can take to try to counter high inflation. When it costs more to borrow -- as with credit cards, mortgages and other loans -- consumers have less spending power and will buy fewer items, decreasing the "demand" side of the supply-demand equation, theoretically helping to lower prices.

    Many worry that further increases to the cost of borrowing money could contract the economy too much, sending us into a recession: a shrinking, rather than growing, economy. The Fed acknowledges the adverse effects of this restrictive monetary policy.

    Here's everything you need to know about what's causing this record high inflation and how the Fed hopes to bring levels back down.

    What's happening with inflation?

    In August, inflation increased to 8.3% over the previous year, though it has declined slightly from July's 8.5% reading and June's record high 9.1% yearly increase, according to the Bureau of Labor Statistics. Gas prices declined significantly by 10.6% in August -- marking a two-month trend -- but that was offset by increasing prices of food and shelter.

    During periods of high inflation, your dollar has less purchasing power, making everything you buy more expensive, even though you're likely not getting paid more. In fact, more Americans are living paycheck to paycheck, and wages aren't keeping up with inflation rates.

    Why is inflation so high right now?

    In short, a lot of this can be attributed to the pandemic. In March 2020, the onset of COVID-19 caused the US economy to shut down. Millions of employees were laid off, many businesses had to close their doors and the global supply chain was abruptly put on pause. This caused the flow of goods produced and manufactured abroad and shipped to the US to cease for at least two weeks, and in many cases, for months, according to Pete Earle, an economist at the American Institute for Economic Research.

    But the reduction in supply was met with increased demand as Americans started purchasing durable goods to replace the services they used prior to the pandemic, said Josh Bivens, director of research at the Economic Policy Institute. "The pandemic put distortions on both the demand and supply side of the US economy," Bivens said.

    Though the immediate impacts of COVID-19 on the US economy are easing, labor disruptions and supply-and-demand imbalances persist, including shortages in microchips, steel, equipment and other goods, causing ongoing slowdowns in manufacturing and construction. Unanticipated shocks to the global economy have made things worse -- particularly subsequent COVID-19 variants, lockdowns in China (which restrict the availability of goods in the US) and the war in Ukraine (which is affecting gas and food prices), according to the World Bank.

    Powell confirmed the World Bank's findings at the Fed's June meeting, calling these external factors challenging because they are outside of the central bank's control.

    Some lawmakers have also accused corporations of seizing on inflation as an excuse to increase prices more than necessary, a form of price gouging.

    स्रोत : www.cnet.com

    Fed officials see U.S. interest rates rising further

    U.S. Federal Reserve officials on Tuesday reiterated their support for further interest-rate hikes to quell inflation, with the influential chief of the New York Fed saying the central bank will likely need to get its policy rate "somewhat above" 3.5% and keep it there through the end of 2023.

    August 31, 202212:56 AM UTC

    Last Updated 20 days ago

    Fed officials see U.S. interest rates rising further

    By Ann Saphir and Lindsay Dunsmuir

    4 minute read

    John C. Williams, president and CEO of the Federal Reserve Bank of New York speaks to the Economic Club of New York in the Manhattan borough of New York, U.S., March 6, 2019. REUTERS/Lucas Jackson

    Aug 30 (Reuters) - U.S. Federal Reserve officials on Tuesday reiterated their support for further interest-rate hikes to quell inflation, with the influential chief of the New York Fed saying the central bank will likely need to get its policy rate "somewhat above" 3.5% and keep it there through the end of 2023.

    "I see us needing to kind of hold a policy stance - pushing inflation down, bringing demand and supply into alignment - it's going to take longer, will continue through next year," New York Fed chief John Williams told the Wall Street Journal. "Based on what I'm seeing in the inflation data, and what I'm seeing in the economy, it's going to take some time before I would expect to see adjustments of rates downward."

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    The Fed in March embarked on what's become the sharpest round of rate hikes since the 1980s, and Fed Chair Jerome Powell last week made clear he and fellow monetary policymakers are prepared to raise borrowing costs as high as needed to restrict growth and reduce inflation that's currently running at more than three times the Fed's 2% target.

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    Doing so, he said, will likely mean a softer labor market and pain for households and businesses; but allowing inflation to remain high would cause even worse damage, he said. read more

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    Williams, who as vice chair of the Fed's rate-setting panel plays a key role steering monetary policy, said that the central bank's decision on whether to deliver a third straight 75-basis-point rate hike next month or a smaller half-point hike will depend on the incoming data, which includes Friday's monthly jobs report and the consumer price index reading just days before the Sept. 20-21 meeting.

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    But September's decision will also, Williams said, depend on policymakers' views of where they think interest rates will need to be by the end of the year.

    "If based on the data it's clear that we need to get interest rates significantly higher by the end of the year, then obviously that informs a decision at any given meeting," Williams said. "We're going to need to have restrictive policy for some time - this is not something that we're going do for a very short period of time and then change course; it's really more about getting policies to the right place to get inflation down and keeping it in this position" to achieve the Fed's 2% inflation goal.

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    The Fed's current target range for the benchmark Fed funds rate is 2.25-2.50%.

    In June, the last time the central bank published a summary of policymakers' rate-path expectations, U.S. central bankers saw rates rising to 3.4% by year end.

    Financial markets are pricing in a steeper increase. Futures contracts tied to the Fed policy reflect trader bets that rates will rise 1.5 percentage points further by year end. There are three more policy-setting meetings this year, including next month's.

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    "I don't think we are done tightening. Inflation remains too high," Atlanta Fed President Raphael Bostic wrote in an essay published Tuesday on the regional bank's website. "That said, incoming data - if they clearly show that inflation has begun slowing - might give us reason to dial back ... We will have to see how those data come in."

    Inflation by the Fed's preferred measure slowed to 6.3% in July, down from 6.8% in June, but price pressures remain "stubbornly widespread," Bostic said.

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    Other data show key segments of the economy remain tight - including data released on Tuesday showing job openings remained high through July, a possible indication of continued wage pressures read more

    Bostic called the overall picture "fuzzy," and said that while focused on the path of inflation, he was also sensitive that moving too aggressively to raise interest rates also carried risks.

    "Moving either too aggressively or too timidly has downsides," Bostic wrote, with entrenched higher inflation looming if the Fed does not squeeze it from the economy, and lost growth and higher unemployment the outcome of "severe policy tightening."

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    To Richmond Fed President Thomas Barkin, it's clear the Fed needs to raise interest rates, although exactly how much next month will hinge on the upcoming jobs and inflation reports. "I'm not going to prejudge it," Barkin told Yahoo Finance, adding that the Fed does need to get rates "into restrictive territory" to bring inflation down.

    (This story refiles to fix typographical error in last paragraph)

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    Reporting by Ann Saphir, Lindsay Dunsmuir and Howard Schneider; Editing by Andrea Ricci

    स्रोत : www.reuters.com

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