The Federal Reserve announced on Wednesday that, in its continued efforts to rein in inflation, it would raise interest rates again by another three-quarters of a point to a target range of 3.75-4%.
Federal Reserve Chairman Jerome Powell told a news conference after the announcement that the “historically rapid pace” of rate hikes is “appropriate given the persistence and strength of inflation and the low level at which we started”.
Powell, who has been under pressure in recent months by members of Congress to avoid a recession, said at some point it would make sense to slow the pace of increases, but added: “We have a ways to go. “, and said he anticipates ongoing increases.
Powell said he didn’t want to prematurely change the Fed’s approach because “…the longer the current episode of high inflation drags on, the more entrenched expectations of higher inflation are likely to be.” .
“Price stability is the responsibility of the Federal Reserve and is the foundation of our economy,” he said. “Without price stability, our economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit everyone.
In his policy statementthe Federal Reserve said: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
In September, when the Fed raised rates three times, a Bankrate analysis found that this was the largest number of increases from the Fed in a year since the 1980s. In the 1980s, Federal Reserve Chairman Paul Volcker raised rates to several occasions – finally at the highest level ever reached, i.e. almost 20%. There have been two recessions as a result and inflation fell to 3.4% in 1987 against 9.8% in 1981.
In August, Powell said the Fed’s objective of eventually reaching underlying inflation of 2% is “unconditional”. On Wednesday, the Fed repeated its mission and declared that it was “Strongly Committed” achieve its inflation target of 2%.
And while Powell said the Fed’s goal was to bring inflation down without causing a recession, he also said, “No one knows if this process will lead to a recession or, if it does, how big that recession would be,” PBS NewsHour reported. . Recognition that efforts to rein in inflation could lead to job losses has led to pushback from some economists and lawmakers who argue that a recession would be worse than current inflation.
Josh Bivens, research director at the Economic Policy Institute, written in July that inflation does not directly reduce people’s incomes as a whole as unemployment does and that in the long term, a recession would hurt economic growth more than inflation.
Several Democratic senators have spoken out against raising rates, saying it would put more Americans out of work and ultimately lead to a painful recession. US Senator Elizabeth Warren tweeted Wednesday morning, “Throwing millions of people out of work without tackling the main drivers of rising prices is not the answer to fighting inflation.
Monday, Meaning. Warren, Bernie Sanders (I-VT), Sheldon Whitehouse (D-RI) Sheldon Whitehouse (D-RI) and Jeff Merkley (D-OR) and U.S. Representatives Sylvia Garcia (D-TX), Jesus “Chuy” G. Garcia, Katie Porter (D-CA), Madeleine Dean (D-PA), Jamaal Bowman (D-NY) and Rashida Tlaib (D-MI) wrote to Powell: “Your primary focus ‘on’ using [the Fed’s] tools to bring inflation back to our 2% target, whatever the cost, is particularly troubling given the limits of interest rate hikes to combat the main drivers of current inflation, including ongoing supply chain issues, corporate price gouging and the war in Ukraine. ”
Powell had previously heard from American senses Sherrod Brown (D-Ohio) and John Hickenlooper (D-CO). Brown, Chairman of the Senate Banking, Housing and Urban Affairs Committee, wrote to Powell on October 25, “…potential job losses caused by excessive monetary tightening will only make these problems worse for the working class.” While Hickenlooper wrote“…I fear any further action will undermine economic growth and hurt American families.”
The Democratic members of Congress presented a invoice in May, this would focus on stopping price increases during an “exceptional market shock”.
Republicans say they would cut government spending and ‘regain American energy independence’ to bring down inflation, under the Commitment to America plan shared by House Minority Leader Kevin McCarthy.
Republican candidates for Congress have seized on the issue for the midterm elections. On October 6, Madison Gesiotto Gilbert, who is running to represent Ohio’s 13th congressional district, tweeted, “41 years of high inflation” among his list of critics of the Biden presidency. While Mark Robinson, the Republican running to fill Democratic Rep. Dina Titus’ seat in Nevada’s 1st Congressional District, blamed pandemic relief for inflation, according at the Financial Times. He said: “It’s irresponsible government policy that spent billions of dollars that we didn’t have and then paid people not to work: that’s what fueled inflation. . If they hadn’t, the Fed wouldn’t have had to react.
The CARES Act, the first pandemic relief measure with a $2.1 trillion price tag, was passed with bipartisan support in Congress during Donald Trump’s presidency. And economists have said inflation is largely being driven by consumer spending.
Over the past month, the Biden administration has taken steps to try to ease the burden of inflation by providing cost of living adjustments to people receiving Social Security as well as the implementation IRS inflation adjustments.
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