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Federal Reserve Hikes Rates 0.75 Percent to Combat Bidenflation

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Federal Reserve Hikes Rates 0.75 Percent to Combat Bidenflation

The US Federal Reserve raised the key US interest rate on Wednesday, saying more hikes are coming as it battles soaring prices brought on by massive government spending by the Biden Administration.

It was the Fed’s third consecutive increase of 0.75 percentage points, continuing the aggressive action to curb inflation that has reached its highest level in forty years.

The increase brings the policy rate to 3.0-3.25 percent, and the FOMC expects further increases to be appropriate.

President Joe Biden will face midterm elections in early November, and soaring prices have become a political liability for him and his administration.

However, a contraction of the world’s largest economy would be more detrimental to Biden, the Fed’s credibility, and the rest of the world.

Federal Reserve Hikes Rates

U.S. Fed Chairman, Jerome Powell, has made it clear that aggressive action will continue to be taken to cool the economy and prevent a repeat of the 1970s and early 1980s, the last time U.S. inflation ran amok.

In the 1980s, it took tough measures and a recession to finally bring prices down, and the Federal Reserve was unwilling to give up its inflation-fighting credibility.

Federal Open Market Committee (FOMC) members anticipate a sharp slowdown this year, with US GDP growth of just 0.2% but a return to growth in 2023, with annual growth of 1.2%.

Powell’s press conference following the meeting will be closely analyzed for hints as to what he believes the Fed must do before declaring victory on Bidenflation.

Members of the FOMC anticipate additional rate hikes this year and next, with no rate cuts anticipated until 2024.

An economist, Diane Swonk of KPMG, cautioned that the central bank will come under increasing pressure, particularly if the unemployment rate rises, and Fed officials “will become political pinatas.”

Federal Reserve Hikes Rates

Powell and other central bankers have been sending the same message: a recession is preferable to continue high inflation, given the suffering it would inflict, particularly on the most vulnerable.

As a result of the Russian war in Ukraine, global supply chain bottlenecks, and Covid lockouts in China, inflation is a global phenomenon, and other major central banks are also taking action.

Numerous economists believe a brief negative US GDP in the first half of 2023 will be required before Biden inflation declines.

Despite a recent decline in gasoline prices, the August report on consumer prices revealed widespread increases.

FOMC statement noted “broader price pressures” beyond food and energy and emphasized that officials are “strongly committed” to returning inflation to its 2% target.

Federal Reserve Hikes Rates

The Federal Reserve has increased the benchmark lending rate many times this year, including two consecutive quarter-point increases in June and July.

The objective is to increase borrowing costs and reduce demand, and the strategy is having an effect: The housing market has slowed as mortgage rates have increased.

Ian Shepherdson of Pantheon Macroeconomics stated, “It is ironic that just as the Fed is ramping up its anti-inflation rhetoric, the forces necessary to drive down inflation over the next year are now in place.”

Following the announcement, U.S. stock prices dropped.

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