The Federal Reserve raised its benchmark by 75 basis points for the fourth consecutive month as runaway inflation seemingly cannot be brought under control.
Jerome Powell's FOMC statement may have seemed dovish, but the Fed chair's remarks at his press conference were anything but. These were the key moments after the Fed raised rates by another 75 points https://t.co/wXl8h55G6F pic.twitter.com/C5OEqmRUj9
— Bloomberg TV (@BloombergTV) November 2, 2022
While raising interest rates can slow inflation, it is a complicated process. Raising interest rates makes borrowing more expensive, which also increases the cost of debt for Americans who are already struggling in other sectors, such as food and housing.
To make matters worse, the inflation rate in September was still 8.2% year-over-year which is well above the 2% goal set by the central bank. With inflation remaining at high levels, it is difficult to tell if the rate increases are working and at what level those increases will continue in the future.
Federal Reserve Chair Jerome Powell told reporters, “I’ve said at the last two press conferences that at some point it will become appropriate to slow the pace of increases. So that time is coming. And it may come as soon as the next meeting, or the one after that. No decision has been made.”
While it sounds like the rate hikes might come in lower than the 0.75% they have been in each of the past four meetings, Powell left room for increases to continue, indefinitely.
“Let me say this,” Powell said. “It is very premature to be thinking about pausing. When people hear lags, they think about pauses. It’s very premature, in my view, to talk about pausing our rate hikes. We have a way to go.”
There is also a big risk in raising interest rates too high. CNBC describes that risk in this way: “As successive rate increases discourage borrowing, many economists think that a recession — a sustained decline in economic activity over several months — is more likely in 2023.”
According to Bloomberg, “A US recession is effectively certain in the next 12 months in new Bloomberg Economics model projections, a blow to President Joe Biden’s economic messaging ahead of the November midterms.”
Bloomberg probability models have a recession occurring in the U.S. by October 2023 at 100%, up from 65% just a month before.
These forecasts provide a sharp contrast to the tone of the Biden Administration and other Democrats as the midterms approach, and it is why the GOP has been hyper-focused on the state of the U.S. economy and inflation.