The Federal Reserve will raise interest rates by 0.75 percentage point for the fourth time in a row on Wednesday to counter rampant inflation.
The central bank is expected to raise interest rates from 3.25 percent to 4 percent, another aggressive push as inflation, which hit a 41-year high in the summer, remains skyrocketing at 8.2 percent.
While inflation could ease on the back of the hikes, the cost of borrowing for Americans is expected to rise, with mortgage rates hitting 7.16 percent last week, well above rates before the 2008 economic crisis.
The central bank’s insistence on raising interest rates has alarmed pundits and lawmakers, with Democratic Senator John Hickenlooper, of Colorado, urging the Fed to shut down before the US goes through another recession.
The Federal Reserve is expected to raise interest rates by another 0.75 percentage point to reach 4 percent on Wednesday. It currently sits at 3.25 percent (above) while mortgage rates rose to 7.16 percent last week, well above their pre-Great Recession levels of 2008.
The Federal Reserve has aggressively raised interest rates to suppress inflation after leaving interest rates near zero during the peak of the pandemic
Inflation remains persistently high at 8.2 percent, with core inflation excluding volatile food and energy costs rising to its highest level in 40 years
Wednesday’s expected increase is intended as a “restrictive” approach, meaning it is being used to forcefully suppress economic activity and borrowing that has fueled inflation.
During the pandemic, the Fed cut interest rates to near zero to help businesses and Americans take advantage of low lending rates.
But in March, the Federal Reserve began raising interest rates at historic levels to 3.25 percent in just seven months.
Although Fed Chair Jerome Powell indicated in July that the central bank would curb rate hikes, they made a second rate hike of 0.75 that month and another in September.
At the Federal Open Market Committee meeting in September, most officials predicted that federal interest rates would reach 4.6 percent by the end of the year, suggesting at least another 0.6 percent hike by December.
The Federal Reserve claims the economy can handle the gains, citing a strong labor market with low unemployment and a sharp rise in job openings.
The unemployment rate fell to 3.5 percent in September, the lowest level since late 1969.
However, experts warn that the increased interest rates will do more than cool the economy.
“You’re trying to cool an economy, not freeze it,” Diane Swonk, chief economist at KPMG, told the paper. Wall Street Journal. “At this meeting they have to think about calibration.”
Fed Chair Jerome Powell, pictured last month, said the central bank expects to hit interest rates of about 4.6 percent by the end of the year.
Democratic Senator John Hickenlooper warned the Federal Reserve to delay rate hikes amid stubbornly high inflation rates to avert an impending recession
sen. Hickenlooper warned that the US economy was just one push away from a recession and called on the Fed to halt its planned hikes.
Another rate hike by the @FederalReserve could lead to a recession. Let’s pause and see what’s going on before we put the economy to the test again,” the Colorado senator wrote on Twitter, accompanying a letter he wrote to President Jerome Powell.
Hickenlooper reasoned it would be “foolish and harmful” to continue raising rates when prices “possibly” fall.
“High inflation demands a response,” Hickenlooper writes in his letter. “But the concern is that the Fed is doing too much and too soon.”
“Mortgage rates have skyrocketed, borrowing costs for Main Street businesses have risen, credit card payments have risen while interest payments have risen, car loans are getting more expensive,” he added in the letter.
“While inflation remains high – thus eroding consumer purchasing power – the Fed’s actions have further increased the cost of living… The prices of the above goods and services have risen, and yet the Fed’s actions have other prices down.’
Strong job growth reports have further encouraged the Fed to continue with their rate hikes
Calls from Hickenlooper echo previous concerns from Senator Elizabeth Warren, who vocally warned in August that she feared the Fed would plunge the economy into recession.
The causes of inflation, things like the fact that COVID is still shutting down parts of the economy around the world, that we still have bottlenecks in the supply chain, that there is still a war going on in Ukraine driving up the cost of energy “And that we still have these giant companies that are doing price-pushing, there’s nothing in raising interest rates, nothing in Jerome Powell’s tool bag that’s directly related to that,” Warren told CNN’s Dana Bash.
“You know what’s worse than high prices and a strong economy? It’s high prices and millions of people out of work.’