In its latest move to forestall continuing inflation, the Federal Reserve has announced that it is raising short term interest rates by exactly 0.5%.
The announcement means the overall Fed fund rate is now in the 4.5% range, the highest it’s been in 15 years, with some analysts predicting it could hit upwards of 5.2% by the end of next year.
Fed chairman Jerome Powell said the nation’s central banking system has spent the last year taking “forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt.”
Powell added, in a statement possibly suggesting further rate hikes in 2023, “We have more work to do.”
Noting a decline in inflation as recorded in both October and November, Power also called that trend a “welcome reduction,” before adding, “But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.”
Powell also addressed the big recession question by remarking: “I don’t think anyone knows whether we’re going to have a recession or not. And if we do, whether it’s going to be a deep one or not. It’s just not knowable.”
While the 4.5% figure is high when looked in the context of the last two decades, it’s almost nothing, say economists, when compared with the historic rates seen in the late 1970s early 1980s.
Then the rate meandered from around 13% to an all-time high of 19.1%, with the figure gradually declining to 8.2% by the end of the 1980s.
The most recent rate hike, says the Washington Post, is evidence of uncertainty at the Federal Reserve. “How much pain is ahead for families and businesses remains to be seen.”
Notes the Financial Times: “As the central bank’s actions have begun to have a noticeable impact on the economy, a debate has emerged about how much more restraint is needed to tame inflationary pressures that remain elevated in many sectors.”
By Garry Boulard
