Fed Raises Interest Rates By 75 Basis Points Again As Investors Brace For Recession

- Advertisement -


Topline

The Federal Reserve on Wednesday doubled down on its most aggressive economic tightening campaign in nearly three decades to help temper the nation’s stubbornly high inflation, raising interest rates by another 75 basis points as experts increasingly worry the shift in monetary policy could drive the economy into a recession—if it hasn’t already.

Key Facts

At the conclusion of its two-day policy meeting, the Federal Open Markets Committee said Wednesday afternoon it voted unanimously to raise the federal funds rate (the rate at which commercial banks borrow and lend reserves) by 75 basis points, for a second time in a row, to a target range of 2.25% to 2.5%.

- Advertisement -

Thought Fed Chair Jerome Powell said in May that officials were not actively” considering a 75-basis-point hike, investors began pricing in the biggest rate increases since 1994 after the annual inflation readings for May and June unexpectedly hit new 40-year highs.

Fed policymakers began raising rates in March, as they had signaled they would for months, but expectations for the pace and intensity of future rate hikes have grown more aggressive amid stubborn price gains and criticism that the central bank waited too long to start the hikes; at one point this month, bond markets had priced in a rate hike of 100 basis points.

By making borrowing more expensive and thereby tempering demand, rate increases are critically combating inflation, but “growing fears” that the hikes will spur a recession by undercutting economic growth are the “driving forces” behind recent market weakness, says analyst Tom Essaye of the Sevens Report.

What To Watch For

Amid concerns over rate hikes curbing consumer demand, data released on Thursday morning is likely to show the US economy shrank for a second consecutive quarter this year, constituting a technical recession, Essay notes. He points out the National Bureau of Economic Research, which the government recognizes as the official arbiter of recessions, likely won’t declare a recession simply because of the negative data, but he also warns the economy “may well actually be in a material contraction ” by the end of the year.

Chief Critic

“The Fed failed spectacularly early on,” Nigel Green, the CEO of $12 billion advisory DeVere Group, said Wednesday, blasting officials’ long-time insistence that pandemic-era inflation would prove only transitory, or temporary and saying the Fed has since had to “overcompensate” with the biggest rate hikes since 1994. “The Fed is out of step and, therefore, it’s now helping push the world into global recession,” he posits.

Key Background

The economy quickly bounced back after the Covid-19 recession in 2020, but the Fed’s withdrawal of pandemic stimulus measures and rate-hiking agenda this year has hit stocks and sparked renewed fears of a recession. Earlier this month, Bank of America economists became the latest experts predicting the US will fall into a recession over the next year, telling clients that prolonged inflation and the resulting interest rate hikes have unleashed a “worrying deterioration” in the economy, and particularly in the once-booming housing market. “The Fed has become more committed to using its tools to help restore price stability, with a willingness to accept at least some pain in the process,” he said.

Surprising Fact

After climbing nearly 27% last year, the S&P 500 is down 17% this year, and the tech-heavy Nasdaq has plummeted 25%.

Stocks Rally Ahead Of Fed Decision, Microsoft And Alphabet Rise After Earnings (Forbes)

Inflation Spiked 9.1% In June—Hitting New 40-Year High As Price Surge Fuels Recession Fears (Forbes)

,

Credit: www.forbes.com /

- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox