Fed deploys supersized rate hikes, ending era of easy money

Source: Politico | July 27, 2022 | Victoria Guida

Fed officials increased rates by three-quarters of a percentage point, bringing their main policy rate to its highest level since 2019.

The Federal Reserve on Wednesday pulled the trigger on another supersized interest rate hike, ushering in an end to easy money policies in its bid to battle the worst inflation since Ronald Reagan’s presidency.

Fed officials increased rates by three-quarters of a percentage point, bringing their main policy rate to its highest level since 2019. The central bank has signaled it will raise borrowing costs further throughout the year, which would make debt more expensive than at any time since the 2008 financial crisis.

The central bank slashed rates at the beginning of the pandemic to encourage lending and boost growth as the economy entered a brief but deep recession. With its move Wednesday, it has removed that support for the economy. That means that now the Fed will be taking inflation on more directly and its moves could cut into growth — and the still-healthy job market — more severely.

Already, the Fed’s actions have contributed to a slowdown in the economy, raising fears that the U.S. might be tipping into recession. Manufacturing output is slowing, wage growth is decelerating and the housing market is cooling, all signs that rate hikes are starting to wend their way through the country. On Thursday, the government reports on the April-June GDP numbers, which the Atlanta Fed says could show a contraction for the second straight quarter.

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  • Consistent July 27, 2022 at 5:06 pm #54585

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