Fed Likely to Make Big Change To Interest Rates
(PatriotWise.com) – The Federal Reserve is likely to make a fourth straight steep increase in the key interest rate this week, leading some to believe the aggressive action will send the US into a recession.
So far this year, the Fed has increased the benchmark lending rate five times, including three straight 0.75-point increases.
But with inflation persistently high and a tight labor market, analysts believe a fourth 0.75-point increase is almost certain at the Fed’s upcoming policy meeting which begins on Tuesday. Many economists also expect the Fed to raise rates again by a half-point in their December meeting.
The Fed’s actions to cool inflation have had a ripple effect on the economy, with mortgage rates reaching their highest in decades and home sales sliding. Further interest rate hikes are expected to further dampen consumer spending.
As a result of the rate hikes, high inflation, and global economic slowdown, many analysts have warned that the economy will likely enter a recession next year.
Some central bank officials have worried that the Fed is tightening policy too much.
In October the president of the San Francisco Fed, Mary Daly, suggested policymakers should begin planning for a reduction in the size of rate hikes. Chicago Fed President Charles Events also warned that “overshooting is costly.”
The Fed’s benchmark rate is currently at a target range of 3 to 3.25 percent. While gas prices have dropped slightly as President Biden drains the Strategic Petroleum Reserve ahead of the midterm elections, consumer prices continue to climb, with a core measure that omits food and energy surging to a 40-year high in September.
But high inflation isn’t the only concern for policymakers. They are also worried that a mindset of continued rising prices could set in, which would lead to stagflation.
It is the fear of stagflation that has driven the Fed to front-load its rate hikes instead of pursuing the more customary path of small, gradual increases over a longer period of time.
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