Fed Raises Rates Another 75 Basis Points

https://www.forbes.com/sites/jonathanponciano/2022/09/21/fed-raises-rates-another-75-basis-points-pushing-borrowing-costs-to-highest-level-since-great-recession/?sh=774eba3f782a

Fed Raises Rates Another 75 Basis Points—Pushing Borrowing Costs To Highest Level Since Great Recession

The Federal Reserve on Wednesday doubled down on its most aggressive economic tightening campaign in three decades, raising interest rates by another three-fourths of a percentage point and pushing borrowing costs to the highest level since the Great Recession in order to help temper the nation's stubbornly high inflation—even as experts worry the hawkish tightening could drive the economy into a recession.

At the conclusion of its two-day policy meeting on Wednesday, the Federal Open Markets Committee said it would raise the federal funds rate (the rate at which commercial banks borrow and lend reserves) by 75 basis points for the third meeting in a row to a target rate of 3% to 3.25%—the highest level since 2008.

Even though Fed Chair Jerome Powell laid out a case for slowing the pace of tightening after the last increase in July, Fed officials changed their tune after the Labor Department reported consumer prices rose more sharply than expected in August, suggesting the central bank has more work to do before taming inflation.

Officials also said they project the median federal funds rate will be at 4.4% by the end of the year, suggesting they will raise rates by at least 50 basis points for the next two meetings; stocks sank immediately after the announcement, with the Dow Jones Industrial Average reversing gains to trade down 100 points.

Fed policymakers began raising rates in March, as they had signaled they would for months, but expectations for the pace and intensity of future rate hikes have grown more aggressive amid stubborn price gains and criticism that the central bank waited too long to start the hikes; at one point this month, bond markets priced in a one-in-four chance of a full-point rate hike.

By making borrowing more expensive and thereby tempering demand, rate increases are critical in combating inflation, but "growing fears" that the hikes will spur a recession by undercutting economic growth are the "driving forces" behind recent market weakness, notes analyst Tom Essaye of the Sevens Report.