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Members of the U.S. Federal Reserve’s Open Market Committee voted unanimously on 27 July to add three-quarters of a point to the key federal funds interest rate.
The hike followed the same-size increase the committee made in June, making the successive increases the Fed’s most aggressive policy tightening in 40 years.
The rate will now move between 2.25 percent and 2.50 percent, while U.S. inflation shot up to 9.1 percent in June.
Fed chair Jerome Powell declined to speculate on the size of the central bank’s next rate increase at its September meeting.
However, he did say that at some future time the bank will slow the pace of rate increases.
“There is some evidence at this time” that the economy is “seeing the slowdown in economic activity that we think we need,” Powell noted.
However, “it’s likely that [recent rate hikes’] full effect has not been felt by the economy, so there’s probably some significant additional tightening left in the pipeline,” he warned.
The interest-rate futures market is betting that the Fed will lift rates to around 3.5 percent before January, then begin to lower rates in 2023, The Wall Street Journal said.
Stocks rallied on the news and Powell’s comments, with the Standard & Poor’s 500 index adding 2.6 percent on the day. The NASDAQ grew by 4.1 percent, its biggest one-day gain in two years.
Yields on the 10-year treasury note fell.
Powell dismissed claims that the U.S. is in a recession.
“There are just too many areas of the economy that are performing too well,” he said.
The U.S. GDP shrank 0.9 percent in this year’s second quarter, following a 1.6-percent contraction in the first. Two consecutive quarters of diminishing economic activity is the technical definition of a recession.
However, the U.S. is not seen as being in a formal recession until one is declared by the nonprofit National Bureau of Economic Research. The bureau weighs the performance of various sectors of the economy together before determining that a full-blown recession has arrived.
TREND FORECAST: Two consecutive quarters of shrinking economic output and ever-rising inflation means the U.S. has entered a period of Dragflation, our Top 2022 Trend in which as the economy contracts, prices will continue to expand. Yet, our definition is blackballed by the mainstream media who instead promote that recession is not real and at worst Europe and the U.S. will enter a period of “stagflation”: stagnant economy and rising inflation.
Furthermore, with the average inflation rate in the U.S. at 8.6 percent, bringing the Fed rate to a 2.25 to 2.50 rate will do next to nothing to bring down inflation.