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.
Average long-term U.S. mortgage rates are continuing to rise, with interest on the key 30-year loan at its highest level since 2009.
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.
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.
With inflation raging at four-decade highs, economists and investors expect the central bank to enact the fastest pace of rate hikes since 2005. That would mean higher borrowing rates well into the future.
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.
The debate over how quickly to raise interest rates is being closely watched by financial markets and also could have an impact on the broader economy.
Federal Reserve Governor Michelle Bowman said Monday that she was open to lifting interest rates by more than the traditional quarter-point at the central bank’s next meeting in March.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average has spiked in the last six weeks to 3.92%.
Fed officials are expected to raise their benchmark short-term rate several times this year beginning in March. But economists have increasingly suggested that the Fed has waited too long to unleash its inflation-fighting tools.
With high inflation squeezing consumers and businesses and unemployment falling steadily, the Fed also said it would phase out its monthly bond purchases, which have been intended to lower longer-term rates, in March.
Fed officials now expect to raise short-term interest rates three times this year, a sharp shift from September, when they were divided over doing it even once. Economists increasingly expect them to raise rates at least four times in 2022.
The Fed also said it will likely begin slowing the pace of its monthly bond purchases “soon” if the economy keeps improving. The bond purchases have been intended to lower longer-term loan rates to encourage borrowing and spending.
In a speech being given virtually to an annual gathering of central bankers, Federal Reserve Chairman Jerome Powell stressed that the beginning of tapering does not signal any plan to start raising the Fed’s benchmark short-term rate.
