US Fed raises interest rates again by 75 basis points

First modification: 09/22/2022 – 04:40

Fears are also rising. In its battle against inflation, the US Federal Reserve raised its key interest rate again by three-quarters of a point and signaled more rate hikes to come, even though this will increase the risk of an eventual recession.

The Fed’s move raised its short-term benchmark interest rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level since early 2008.

Fed officials want to push rates to about 4.4% by the end of the year, one point higher than they had forecast in June. And they hope to raise them again next year, up to approximately 4.6%. If materialized, it would be the highest level since 2007.

Rising interest rates translate into higher costs for mortgages, car loans, and business loans. In this way consumers and businesses will borrow less and spend less money, slowing down the economy and curbing inflation.

During the last month, the decrease in gasoline prices slightly lowered general inflation, which in August was 8.3% annual. This reduction in the cost of gasoline helped President Joe Biden’s public approval ratings, which Democrats hope will boost his prospects in the November midterm elections.

Jerome Powell, chairman of the Fed, said that before Federal Reserve officials considered stopping their rate hikes, “they would want to be very sure that inflation is coming back down”, taking into account that the objective this year it was 2%. Powell again argued that the strength of the labor market is driving salary increases and that, in parallel, contribute to increasing inflation.

“If we want to pave the way for another period of a very strong labor market,” Powell said, “we have to put inflation behind us. I wish there was a painless way to do it. There isn’t.”

The Fed insists on a “soft landing,” which would curb growth enough to tame inflation, but not enough to trigger a recession. But most economists believe that the Fed’s sharp rate hikes will lead to job cuts, rising unemployment and a recession later this year or early next.

“Nobody knows if this process will lead to a recession, or if so, how significant that recession would be,” Powell said at his news conference. “That’s going to depend on how quickly we bring down inflation.”

The Fed expects the unemployment rate to reach 4.4% by the end of 2023, from its current level of 3.7%. Historically, economists say, every time unemployment rises by half a point in several months, it is always followed by a recession.

with AP