The Federal Reserve is intensifying its fight against inflation as prices are rising at their quickest rate in a generation.
The Federal Reserve increased its benchmark interest rate by an extra 0.75% on Wednesday. The central bank has increased interest rates four times so far this year.
Rate hikes of this pace and extent have not happened since the late 1980s; it follows a similar increase in June.
Despite these quick and furious actions, the central bank still has a lot of work to do. Without starting a recession, its objective is to control inflation.
Fed Chair Jerome Powell explained the “unusually significant” rate increase during a news conference, stating that “the labor market is exceptionally tight and inflation is much too high.”
By addressing demand, he and his colleagues are attempting to combat inflation. They are trying to deal with a jobs market that the Fed chair has described as “unsustainably hot,” where wages are growing quickly because many businesses are spending more to recruit people, by driving up the cost of credit—what consumers and businesses pay to borrow money.
The Fed stated that certain areas of the economy, such as consumption and output, have declined. While the unemployment rate has remained low, it was highlighted that “job increases have been solid in recent months.”
Of course, combating inflation, which is still high at 9.1 percent and is the highest in four decades, is the major objective. The Fed emphasized that the Russia-Ukraine war is exerting further pressure on food and energy costs in addition to the supply chain problems caused by the pandemic.
Powell struck an optimistic tone in his testimony before Congress, even though achieving what economists refer to as a “soft landing” for the economy will be challenging.
The Fed is raising interest rates to achieve that. However, this is not an exact or painless procedure. Growth will slow down, even more, when interest rates are raised, and the unemployment rate—which is already close to its pre-pandemic low—will increase.
Although it is more difficult said than done, the Fed would prefer that those modifications take place gradually.
The Fed is attempting to solve an issue that is influenced by variables outside of its control as June’s inflation increased by 9.1 percent from a year earlier.
The central bank is prepared to handle the demand that increased as the United States emerged from the worst of the pandemic, but it is unable to resolve supply chain problems or put a stop to the war in Ukraine, both of which have increased costs, particularly for food and gasoline.
