In an attempt to combat inflation, the Federal Reserve has issued another “increase to interest rates, deepening the risks of a sharp economic downturn and job losses” reports Daily Mail.
“At the end of its two-day policy meeting on Wednesday, the US central bank raised its policy rate by 75 basis points for the third time, to a range of 3 percent to 3.25 percent, the highest level since the 2008 financial crisis” the article states.
Earlier this month, Powell warned that Americans are in for ‘some pain’ ahead as the Fed works to end inflation, which remains high at 8.3 percent – “but as interest rates climb, the path to a so-called ‘soft landing’ for the economy is narrowing.”
The US economy has been flashing warning signs for some time, including six straight months of contraction in the first half of the year, meeting one informal definition of a recession — but Biden denies a recession has begun.
They’re also likely to signal additional hikes in 2023, perhaps to as high as roughly 4.5 percent.
Short-term rates at that level would make a recession likelier next year by sharply raising the costs of mortgages, car loans and business loans.
The Fed intends to use higher borrowing costs to slow growth by cooling a still-robust job market, controlling wage growth and other inflation pressures.
Yet the risk is growing that the Fed may weaken the economy so much as to cause a downturn that would produce heavy job losses.
The economy hasn’t seen rates as high as the Fed is projecting since before the 2008 financial crisis.
The average fixed mortgage rate topped 6 percent last week, its highest point in 14 years.
Mortgage rate hikes have “already had a significant impact on the housing marking, with homebuying activity dropping off sharply this summer” and “credit card borrowing costs have reached their highest level since 1996, according to Bankrate.com.”
