Tag: Interest Rates

BIDEN’S AMERICA: Feds Again Hike Interest Rates and Signal More to Come

by Breck Worsham, posted in economy, news, politics

WASHINGTON (AP) — The Federal Reserve reinforced its inflation fight Wednesday by raising its key interest rate for the seventh time this year and signaling more hikes to come. But it announced a smaller hike than it had in its past four meetings at a time when inflation is showing signs of easing.

The Fed made clear, in a statement and a news conference by Chair Jerome Powell, that it thinks sharply higher rates are still needed to fully tame the worst inflation bout to strike the economy in four decades.

The central bank boosted its benchmark rate a half-point to a range of 4.25% to 4.5%, its highest level in 15 years. Though lower than its previous three-quarter-point hikes, the latest move will further increase the costs of many consumer and business loans and the risk of a recession.

More surprisingly, the policymakers forecast that their key short-term rate will reach a range of 5% to 5.25% by the end of 2023. That suggests that the Fed is poised to raise its rate by an additional three-quarters of a point and leave it there through next year. Some economists had expected that the Fed would project only an additional half-point increase.

The latest rate hike was announced one day after an encouraging report showed that inflation in the United States slowed in November for a fifth straight month. The year-over-year increase of 7.1%, though still high, was sharply below a recent peak of 9.1% in June.

“The inflation data in October and November show a welcome reduction,” Powell said at his news conference. “But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.”

In its updated forecasts, the Fed’s policymakers predicted slower growth and higher unemployment for next year and 2024. The unemployment rate is envisioned to jump to 4.6% by the end of 2023, from 3.7% today. That would mark a significant increase in joblessness that typically would reflect a recession.

Consistent with a sharp slowdown, the officials also projected that the economy will barely grow next year, expanding just 0.5%, less than half the forecast it had made in September.

In recent weeks, Fed officials have indicated that they see some evidence of progress in their drive to defeat the worst inflation bout in four decades and bring inflation back down to their 2% annual target. The national average for a gallon of regular gas, for example, has tumbled from $5 in June to $3.21.

Many supply chains are no longer clogged, thereby helping reduce goods prices. The better-than-expected November inflation data showed that the prices of used cars, furniture and toys all declined last month.

So did the costs of services from hotels to airfares to car rentals. Rental and home prices are falling, too, though those declines have yet to feed into the government’s data.

And one measure the Fed tracks closely — “core” prices, which exclude volatile food and energy costs for a clearer snapshot of underlying inflation — rose only slightly for a second straight month.

Inflation has also eased slightly in Europe and the United Kingdom, leading analysts to expect the European Central Bank and the Bank of England to slow their pace of rate hikes at their meetings Thursday. Both are expected to raise rates by half a point to target still painfully high prices spikes after big three-quarter-point increases.

Inflation in the 19 countries using the euro currency fell to 10% from 10.6% in October, the first decline since June 2021. The rate is so far above the bank’s 2% goal that rate hikes are expected to continue into next year. Britain’s inflation also eased from a 41-year record of 11.1% in October to a still-high 10.7% in November.

Many economists think the Fed will further downshift to a quarter-point rate hike when it next meets early next year. Asked about that Wednesday, Powell said he has yet to decide how large he thinks the next hike should be. But having raised rates so fast, he said, “we think the appropriate thing to do now is to move at a slower pace. That will allow us to feel our way.”

Powell downplayed any notion that the Fed might decide to reverse course next year and start cutting rates to support growth, as Wall Street investors are expecting.

“I wouldn’t see the committee cutting rates until we’re confident that inflation is moving down in a sustained way,” he said.

Cumulatively, the Fed’s hikes have led to much costlier borrowing rates for consumers as well as companies, ranging from mortgages to auto and business loans. They have sent home sales plummeting and are starting to weigh down rents on new apartments, a leading source of high inflation.

Fed officials have said they want rates to reach “restrictive” levels that slow growth and hiring and bring inflation down to their target range. Worries have grown that the Fed is raising rates so much in its drive to curb inflation that it will trigger a recession next year.

The policymakers have stressed that more significant than how fast they raise rates is how long they keep them at or near their peak.

“It’s far more important to think what is the ultimate level,” Powell said Wednesday.

Powell’s biggest focus has been on services prices, which he has said are likely to stay persistently high. In part, that’s because sharp increases in wages are becoming a key contributor to inflation. Services companies, like hotels and restaurants, are particularly labor-intensive. And with average wages growing at

With many service-sector employers still desperate for workers, Powell said pay growth may remain above what’s consistent with the Fed’s 2% inflation target.

“We have a long way to go,” the Fed chair said, “to get to price stability.”

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AP Business Writer David McHugh contributed to the contents of this report.

FILE PHOTO: U.S. President Joe Biden delivers remarks on the state of his American Rescue Plan from the State Dining Room at the White House in Washington, D.C., U.S., May 5, 2021. REUTERS/Jonathan Ernst

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‘TOO HIGH!’ : Trump slams Feds over interest rate hike

by Breck Worsham, posted in economy, news, politics

WASHINGTON, D.C. (AP) — President Donald Trump on Thursday cast aside concerns about the Federal Reserve’s independence, saying he was “not happy” with the Fed’s recent interest rate increases.

Trump told CNBC in an interview: “I don’t like all of this work that we’re putting into the economy and then I see rates going up.”

Last month, the Fed raised its benchmark rate for a second time this year and projected two more increases in 2018. Its rate hikes are meant to prevent the economy from overheating and igniting high inflation. But rate increases also make borrowing costlier for households and companies and can weaken the pace of growth. In particular, the Fed’s most recent rate hikes could dilute some of the benefit of the tax cuts Trump signed into law last year.

The president acknowledged that his comments about the Fed would likely raise concerns. The central bank has long been seen as needing to operate free of political pressure from the White House or elsewhere to properly manage interest rate policy.

The Fed’s dual mandate is to maximize employment and stabilize prices. By maintaining its independence, the central bank can make politically contentious decisions to combat economic challenges, like the huge bond purchases it made after the 2008 financial crisis to help drive down long-term rates to support the economy. That policy drew rebukes from many Republican lawmakers.

In February, Jerome Powell, Trump’s hand-picked choice, became Fed chairman. Last week, Powell said in an interview with the radio program Marketplace that he didn’t expect to face pressure from the White House.

“We have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns,” Powell said. “We do our work in a strictly nonpolitical way, based on detailed analysis, which we put on the record transparently.”

He added, “No one in the administration has said anything to me that really gives me concern on this front.”

The reaction to Trump’s remarks in the financial markets was muted. The U.S. dollar fell to 112.46 yen from 112.84 yen earlier, and yields on Treasurys dipped slightly.

After Trump’s interview with CNBC was made public, Lindsay Walters, a White House spokeswoman, said the president “respects the independence of the Fed.”

“The president’s views on interest rates are well-known, and his comments today are a reiteration of those long held positions, and public comments,” Walters said.

Speaking about Fed policy in his interview with CNBC, Trump said he is “letting them do what they feel is best.”

But his comments raised alarms, including with some former Fed officials who saw in his remarks a possible effort to apply public pressure on the central bank.

“I am not pleased,” said Carl Tannenbaum, a former Chicago Fed official and chief economist at Northern Trust. “The remarks certainly aren’t an immediate threat to Fed independence, but they break with the tradition of respectful distance.”

Randall Kroszner, a former Fed governor, said the central bank has withstood political pressure before and will continue to do so under Powell’s leadership.

“The Fed has often faced political pressures — from Congress, presidents, Treasury secretaries and innumerable outside groups,” said Kroszner, an economics professor at the University of Chicago. “My experience at the Fed is consistent with what Jay Powell recently said — being non-political is deep in the Fed’s DNA — and I believe that Jay will keep it that way.”

During the 2016 presidential campaign, Trump was highly critical of the Fed and accused its policymakers of keeping rates at ultra-low levels to favor Democrats. But he also told CNBC during the campaign that he is a “low interest-rate-person.”

Past efforts to apply political pressure on the Fed have sometimes hurt the economy. President Richard Nixon encouraged Arthur Burns, the Fed chairman at the time, to help boost economic growth ahead of Nixon’s 1972 landslide re-election. That episode ultimately triggered runaway inflation that took a decade to tame and required raising the Fed’s policy rate above 15 percent — more than eight times the rate’s current average.

George H.W. Bush’s administration complained that he felt the Fed’s failure to cut rates more quickly in 1992 contributed to his re-election defeat that year.

When Robert Rubin led President Bill Clinton’s National Economic Council, he adopted a rule of never commenting on the Fed’s actions — a policy that was subsequently followed by the George W. Bush and Obama administrations.

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