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#Federal Reserve hikes interest rates by 75 basis points for fourth time this year

Federal Reserve hikes interest rates by 75 basis points for fourth time this year

The Federal Reserve on Wednesday hiked interest rates by three-quarters of a percentage point, pressing even harder on the brakes of the economy in a scramble to slow inflation.

The Federal Open Market Committee, the panel of Fed officials responsible for monetary policy, boosted the central bank’s baseline interest rate range to a span of 3.75 to 4 percent. It is the fourth consecutive 75 basis point hike issued by the Fed and sixth interest rate increase since March.

As the Fed raises its baseline interest rate range, interest rates on mortgages, credit cards, and other loans rise as well. Higher borrowing costs tend to slow the economy as households and businesses have less money to spend on goods and services.

The Fed’s latest hike will add even more financial pressure to a resilient but slowing U.S. economy that some experts believe is on the precipice of recession.

The Fed’s rapid interest rate hikes have caused home sales to collapse and pushed businesses to pull back investment, two major forces that could slow the U.S. economy. Higher Fed interest rates also deepen economic turmoil abroad, which could boomerang on the U.S.

Even so, inflation has remained stubbornly high as a strong U.S. job market helps support consumer spending and supply shocks — particularly the war in Ukraine — push prices for food and fuel higher. Prices rose 6.2 percent over the past 12 months, according to the personal consumption expenditures price index, the Fed’s preferred inflation gauge.

The Fed has faced growing pressure from some policymakers, especially Democratic lawmakers, to slow down its rate hike campaign amid growing signs of a looming recession. 

Critics of the Fed’s approach argue the bank will needlessly drive millions into unemployment by ignoring clear signs of inflation falling, the lagging effect of Fed interest rate hikes and the bank’s inability to solve supply snarls.

Fed leaders have insisted for months that they will continue to boost interest rates until inflation shows signs of falling toward the bank’s annual 2 percent target. But the FOMC’s statement announcing the latest interest rate hike Wednesday also hinted toward a slower pace of rate hikes moving forward.

FOMC officials said Wednesday they will consider “the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments” when deciding future rate hikes.

Put simply, Fed officials will think about how quickly they’ve already raised rates, how long those hike may take to affect inflation, and how the economy is responded. While those are all factors the Fed should consider anyway, their inclusion in Wednesday’s statement is a notable admission of the risks the bank faces as it fights inflation.

Updated at 2:26 p.m.

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