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.
Although major swaths of the economy—including the job market and consumer spending—remain robust, there are mounting worries that rising borrowing costs for consumers and businesses, after years of near-zero interest rates, could cause a sudden retrenchment.
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.
Federal Reserve Chair Jerome Powell, fresh off winning confirmation for a second term, acknowledged for the first time Thursday that high inflation and economic weakness overseas could thwart his efforts to avoid causing a 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.
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.
The relatively close vote reflects the increasingly partisan atmosphere in Congress that is now engulfing the nomination process for the Fed, an independent institution that has sought to remain above politics.
As the Federal Reserve sees it, the surge in job postings forces employers to boost wages to attract and keep workers. Those higher labor costs are then passed to customers in the form of higher prices, thereby helping fuel inflation.
The Fed last month kicked off what’s expected to be a series of interest rate hikes to tame inflation, but the efforts to temper demand will take time to materialize.
In minutes from their policy meeting three weeks ago released Wednesday, Fed officials said that half-point interest rate hikes, rather than traditional quarter-point increase, “could be appropriate” multiple times this year.
Federal Reserve Chair Jerome Powell said new forms of digital money such as cryptocurrencies and stablecoins present risks to the U.S. financial system and will need new rules to protect consumers.
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.
The Senate Banking Committee approved Jerome Powell’s nomination to a second four-year term as chair of the Federal Reserve Wednesday, just hours after the central bank began what will be a difficult effort to combat inflation.
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.
