cloudyn.png
Saturday December 3rd, 2022 5:58PM

High inflation in sight, Fed to signal more rate hikes ahead

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — Last month, when Federal Reserve Chair Jerome Powell spoke at an economic conference in Jackson Hole, Wyoming, he issued a blunt warning: The Fed’s drive to curb inflation by aggressively raising interest rates, he said, would “bring some pain" for Americans.

When the Fed ends its latest meeting Wednesday and Powell holds a news conference, Americans will likely get a better idea of how much pain could be in store.

The central bank is expected to raise its key short-term rate by a substantial three-quarters of a point for the third consecutive time. Another hike that large would boost its benchmark rate — which affects many consumer and business loans — to a range of 3% to 3.25%, the highest level in 14 years.

Many Fed watchers, though, will be paying particular attention to Powell's words at a news conference afterward. His remarks will be parsed for any hint of whether the Fed expects to moderate its rate hikes in the coming months — or instead to continue tightening credit significantly until it's convinced that inflation is on its way down.

In a further sign of the Fed's deepening concern about inflation, it will also likely signal Wednesday that it plans to raise rates much higher by year's end than it had forecast three months ago — and to keep them higher for longer. Economists expect Fed officials to forecast that their key rate could go as high as 4% before the new year. They're also likely to signal additional hikes in 2023, perhaps to as high as roughly 4.5%.

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 those higher borrowing costs to slow growth by cooling a still-robust job market to cap 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. Last week, the average fixed mortgage rate topped 6%, its highest point in 14 years. Credit card borrowing costs have reached their highest level since 1996, according to Bankrate.com.

Powell and other Fed officials still say the Fed's goal is to achieve a “soft landing," by which they would slow the economy enough to tame inflation but not so much as to trigger a recession.

By last week, though, that goal appeared further out of reach after the government reported that inflation over the past year was a painful 8.3%. Even worse, so-called core prices, which exclude volatile food and energy costs, rose much faster than expected.

The inflation report also documented just how broadly inflation has spread through the economy, complicating the the Fed's task. Inflation now appears increasingly fueled by higher wages and by consumers' steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession.

“They’re going try to avoid recession,” said William Dudley, formerly the president of the Federal Reserve Bank of New York. “The problem is that the room to do that is virtually non-existent at this point.”

The Fed’s rapid rate hikes mirror steps that other major central banks are taking, contributing to concerns about a potential global recession. The European Central Bank last week raised its benchmark rate by three-quarters of a percentage point. The Bank of England, the Reserve Bank of Australia and the Bank of Canada have all carried out hefty rate increases in recent weeks.

And in China, the world’s second-largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If recession sweeps through most large economies, that could derail the U.S. economy, too.

At his news conference Wednesday, Powell isn't likely to drop any hints that the central bank will ease up on its credit tightening campaign. Most economists expect the Fed to stop raising rates in early 2023. But for now, they expect Powell to reinforce his hard-line anti-inflation stance.

“It's going to end up being a hard landing,” said Kathy Bostjancic, an economist at Oxford Economics.

“He’s not going to say that," Bostjancic said. But, referring to the most recent Fed meeting in July, when Powell raised hopes for an eventual pullback on rate hikes, she added: "He also wants to make sure that the markets don’t come away and rally. That’s what happened last time.”

Indeed, investors responded then by bidding up stock prices and buying bonds, which lowered rates on securities like the benchmark the 10-year Treasury. Higher stock prices and lower bond yields generally boost the economy — the opposite of what the Fed wants.

The central bank has already engaged in the fastest series of rate hikes since the early 1980s. Yet some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.

Loretta Mester, president of the Cleveland Federal Reserve Bank, and one of the 12 officials who will vote on the Fed's decision Wednesday, said she thinks it will be necessary to raise the Fed's rate to “somewhat above 4% by early next year and hold it there."

“I do not anticipate the Fed cutting” rates next year, Mester added, dispelling the expectations of many investors on Wall Street who had hoped for such a reversal. Comments like Mester's contributed to a sharp fall in stock prices last month that began after Powell's stern anti-inflation speech at the conference in Jackson Hole.

“Our responsibility to deliver price stability is unconditional,” Powell said then — a remark widely interpreted to mean that the Fed will fight inflation even if it requires deep job losses and a recession.

Many economists sound convinced that a recession and widespread layoffs will be necessary to slow rising prices. Research published earlier this month under the auspices of the Brookings Institution concluded that unemployment might have to go as high as 7.5% to get inflation back to the Fed's 2% target.

Only a downturn that harsh would reduce wage growth and consumer spending enough to cool inflation, according to the a paper by Johns Hopkins University economist Laurence Ball and two economists at the International Monetary Fund.

  • Associated Categories: U.S. News, Associated Press (AP), AP National News, AP Online National News, Top U.S. News short headlines, Top General short headlines, AP Business, AP Business - Economy, AP Business - Industries, AP Business - Financial Services
© Copyright 2022 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Increase in Venezuelan migration is felt across US
Venezuelans have surpassed Guatemalans and Hondurans to become the second-largest nationality stopped at the U.S. border in August after Mexicans
12:04AM ( 13 minutes ago )
High inflation in sight, Fed to signal more rate hikes ahead
Last month, when Federal Reserve Chair Jerome Powell spoke at an economic conference in Jackson Hole, Wyoming, he issued a blunt warning: The Fed’s drive to curb inflation by aggressively raising interest rates, he said, would “bring some pain” for Americans
12:01AM ( 17 minutes ago )
EXPLAINER: How alleged plot exploited pandemic to net $250M
The Department of Justice has charged 48 people in what prosecutors have called a scheme to take advantage of the COVID-19 pandemic to defraud the U.S. government of $250 million
11:23PM ( 54 minutes ago )
U.S. News
Analysis: UN chief, speaking to leaders, doesn't mince words
It was Antonio Guterres' strongest and most striking speech since he took the helm of the United Nations in 2017, The secretary-general not only sounded a global alarm to world leaders about the survival of humanity and the planet, but he used very undiplomatic language in calling out those he blames
12:04AM ( 14 minutes ago )
US, Iran to speak at UN; Zelenskyy to appear from Ukraine
U.S. President Joe Biden and Iran President Ebrahim Raisi are among those taking the spotlight on the second day of the world body’s first fully in-person meeting since the coronavirus pandemic began
12:02AM ( 15 minutes ago )
Fiona threatens to become Category 4 storm headed to Bermuda
Hurricane Fiona is threatening to strengthen into a Category 4 storm as it lashes the Turks and Caicos Islands and was forecast to squeeze past Bermuda later this week
12:00AM ( 18 minutes ago )
Associated Press (AP)
Asian lender ADB cuts forecasts to reflect weakening outlook
The Asian Development Bank has downgraded its forecasts for growth in the region, citing the war in Ukraine, rising interest rates to combat decades-high inflation, and China's slowing economy
10:42PM ( 1 hour ago )
One year later, growing global perils as Biden returns to UN
President Joe Biden is confronting difficult issues as he travels to New York this week for the annual gathering of world leaders at the U.N. General Assembly
6:28PM ( 5 hours ago )
AP Business
Drought in Western US heats up as a Senate campaign issue
The consequences of drought and efforts to funnel billions of dollars toward securing water supplies in the West are becoming larger issues in two of the most consequential races for the U.S. Senate
4:39PM ( 7 hours ago )
US stocks fall broadly ahead of key Fed decision on rates
Stocks are falling broadly on Wall Street and Treasury yields are mostly rising ahead of a key decision on interest rates by the Federal Reserve
3:43PM ( 8 hours ago )
Turkish leader to United Nations: Be 'much more influential'
Turkey's president used his speech at the U.N. General Assembly to shine a spotlight on Turkish maneuvering in conflicts that span from Syria to Ukraine
1:26PM ( 10 hours ago )
AP Business - Economy
Manchin rails against 'revenge politics' on permit plan
Sen. Joe Manchin on Tuesday railed against what he called “revenge politics″ being used against him, as liberals in the House and Senate team up with Republicans to oppose his plan to speed permits for natural gas pipelines and other energy projects
5:09PM ( 7 hours ago )
Beyond Meat executive charged with biting man in fight
A top executive at plant-based food company Beyond Meat has been charged with felony battery after a fight outside a college football game in which he was accused of biting a man’s nose
4:46PM ( 7 hours ago )
GOP AGs push Visa, Mastercard, AmEx not to track gun sales
A group of Republican attorneys general are pushing the major payment networks _ Visa, Mastercard and American Express _ to drop their plans to start tracking sales at gun stores, arguing the plans could infringe on consumer privacy and push legal gun sales out of the mainstream financial network
1:45PM ( 10 hours ago )
AP Business - Industries
Asia shares rise on US rally ahead of expected Fed rate hike
Asian shares have advanced after Wall Street closed higher on a last-minute buying spree following recent losses
2:39AM ( 21 hours ago )
US stocks rise ahead of expected interest rate hike by Fed
Stocks closed higher on Wall Street after swaying between small gains and losses much of the day as investors brace for another big interest rate increase this week from the Federal Reserve
4:42PM ( 1 day ago )
US stocks waver ahead of expected interest rate hike
Stocks swayed between small gains and losses on Wall Street as investors brace for another big interest rate increase this week from the Federal Reserve
2:10PM ( 1 day ago )
AP Business - Financial Services
Increase in Venezuelan migration is felt across US
Venezuelans have surpassed Guatemalans and Hondurans to become the second-largest nationality stopped at the U.S. border in August after Mexicans
12:04AM ( 14 minutes ago )
EXPLAINER: How alleged plot exploited pandemic to net $250M
The Department of Justice has charged 48 people in what prosecutors have called a scheme to take advantage of the COVID-19 pandemic to defraud the U.S. government of $250 million
11:23PM ( 55 minutes ago )
Alaskans pocket over $3,000 in annual oil-wealth payments
Nearly every single Alaskan got a financial windfall amounting to more than $3,000 Tuesday
11:03PM ( 1 hour ago )
Migrants sue Florida governor over Martha's Vineyard flights
Venezuelan migrants flown from San Antonio to the upscale Massachusetts island of Martha’s Vineyard have sued Florida Gov. Ron DeSantis and his transportation secretary for engaging in a “fraudulent and discriminatory scheme” to relocate them
10:07PM ( 2 hours ago )
Trial opens for QAnon follower who chased officer at Capitol
A trial is underway for an Iowa man whose confrontation with police created some of the most memorable images from a mob's attack on the U.S. Capitol
8:47PM ( 3 hours ago )