Fed Raises Rates by 75 Basis Points, Largest Increase Since 1994
Inflation, which is at 8.6 percent, showed no signs of slowing after an earlier 50 basis point hike
The Federal Reserve announced Wednesday that it will increase its benchmark interest rates by 75 basis points in order to combat inflation, which is the biggest increase in nearly 30 years.
Fed Head Jerome Powell told reporters on Wednesday that the increase is “an unusually large one” and he does not expect moves of this size to be “common” in the long term. But he indicated that another 75 basis point increase could be the result of July’s meeting.
“At today’s meeting the Committee raised the target range for the federal funds rate by 3/4 percentage point, resulting in a 1-1/2 percentage point increase in the target range so far this year. The Committee reiterated that it anticipates that ongoing increases in the target range will be appropriate. And we are continuing the process of significantly reducing the size of our balance sheet, which plays an important role in firming the stance of monetary policy.”
The decision increases short-term borrowing costs to a target between 1.50 percent and 1.75 percent.
Readers of the Trends Journal are fully aware that the Federal Reserve incorrectly downplayed inflation risks for months --calling it "transitory"-- and just now are seeing the dangers. Jamie Dimon, the CEO of JPMorgan, said the U.S. must prepare for an “economic hurricane,” due to the Fed’s monetary tightening.
The Wall Street Journal reported: The projections showed officials see the rate rising to around 3.75% by the end of 2023, up from the 2.75% rate that officials had penciled in during similar projections in March. Officials project reducing rates slightly in 2024.
The previous meeting occurred in early May and resulted in the central bank’s most significant hike in 20 years. The Fed also announced plans to reduce its $9 trillion balance sheet, which skyrocketed during the COVID-19 outbreak.
Some economists say the Fed will have to raise the rate even higher “just to maintain a neutral setting because underlying inflation is so high.”
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Investors were anticipating the meeting for weeks. Bill Ackman, the billionaire investor, took to Twitter to forecast a 75 basis point increase with a warning from Powell that “nothing is off the table” for the FOMC meeting in July.
In December 2020, Powell pointed to “disinflationary pressures around the globe” and said “it’s not going to be easy to have inflation move up.”
A month later, with inflation on the move well above the Fed’s 2-percent target rate, Powell said it was only “temporary.”
In July 2021, with inflation running at 5 percent, Powell told a Congressional committee that “we really do believe that these things will come down of their own accord as the economy reopens.”
Wrong, wrong, and wrong.
As we noted in “Fed: Stronger Economy, Steady Rates” (23 Mar 2021), Fed officials predicted overall U.S. inflation this year would be 2.4 percent.
Instead, it topped 6 percent in October and has averaged 4.1 percent from January through October.
Until November, Powell and the Fed’s Open Market Committee were referring to inflation as “temporary,” which became “transitory,” a more useful weasel word as what Powell had called “temporary” stretched into its 10th month.
TRENDPOST: Subscribers to the Trends Journal are not surprised by the inflation explosion. The magazine warned that inflation was a serious threat to the economy when Jay Powell, the Fed chairman, spent months referring to inflation as “transitory.”
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He changed his tune in April when he said it was time to be “moving a little more quickly” to tighten monetary policy.
Celente says the same Federal Reserve officials and business media reporters who got inflation wrong a year ago, saying it was “temporary” and “transitory,” are wrong yet again.
“It’s dragflation. The economies won't be stagnant, they will drag down as inflation rises,” Celente said. “We’ve been writing about it for a year. Are they too ill-informed to see the facts, or are they lying to hide the truth of how bad it will be?”
they are hiding the truth