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VOA \u2014 Amid a major stock market downturn, sharply rising inflation, and plummeting consumer confidence, the Federal Reserve Board interest rate-setting body decided Wednesday to raise interest rates by three-quarters of 1% in the hope of taming runaway prices.<\/p>\n
The decision by the Federal Open Market Committee (FOMC) to increase the target for the federal funds rate to between 1.5% and 1.75% marked the largest single-day increase since 1994. The move illustrates the grave concern among policymakers about inflation, which rose at an annual rate of 8.6% last month, a 40-year high.<\/p>\n
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<\/div>\n<\/div>In remarks delivered at a press conference after the FOMC meeting, Federal Reserve Board Chair Jerome Powell indicated that more rate hikes are on the horizon, with another a half- or three-quarter-point increase likely in July, and other increases in three further meetings before the end of the year.<\/p>\n
\u201cMy colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing and transportation,\u201d Powell said, adding that the Fed is \u201cstrongly committed to returning inflation to our 2% objective.\u201d<\/p>\n
Trying to cool demand<\/strong><\/p>\n Inflation drives up the cost of most items people buy on a regular basis, from gasoline to food to clothing. It can also drive up prices on big-ticket items, such as cars, appliances and furniture.<\/p>\n The strategy behind the Fed\u2019s interest rate increases is to cool demand, which can help lower prices.<\/p>\n As interest rates increase, consumers become less likely to borrow money to make large purchases like cars and homes. In recent weeks, for example, the interest rate for a 30-year home mortgage loan in the U.S., which was under 5% in March, has spiked to above 6.7%. It also affects decisions by business owners to make new investments.<\/p>\n The central bank\u2019s task is to cool demand enough to bring inflation back down to its target rate of 2% per year without pushing too far and causing a recession, which could lead to job losses and more economic pain.<\/p>\n \u2018Behind the curve\u2019<\/strong><\/p>\n Until last week, the assumption had been that the central bank would raise rates by half a point in this meeting, with other half-point increases in the pipeline later in the year. However, last week\u2019s consumer price index report from the Bureau of Labor Statistics showed that rather than flattening out as expected, inflation had risen, from an 8.3% annualized pace to 8.6%.<\/p>\n The surprise report increased pressure on the central bank, which has been criticized for waiting too long to address rising prices, to take more dramatic action.<\/p>\n \u201cThe Fed is behind the curve on inflation and it knows it,\u201d Greg McBride, senior vice president and chief financial analyst for Bankrate.com, told VOA. \u201cGiven the ugly inflation report from last week,\u201d he said, a half-point increase would have felt insufficient.<\/p>\n The Fed tries hard not to surprise the financial markets and prefers to signal its rate changes well in advance through \u201cforward guidance\u201d that lets market participants know what to expect.<\/p>\n In his remarks Wednesday, Powell stressed that the circumstances under which the Fed took its decisions on rates was very uncommon, with the Labor Department\u2019s surprising inflation data coming just days before the FOMC was set to meet.<\/p>\n Strong economy<\/strong><\/p>\n During his remarks, Powell several times stressed that while inflation is high and consumer sentiment is low, the underlying U.S. economy is still strong, with demand for goods and services remaining high.<\/p>\n \u201cWe’re not seeing a broad slowdown,\u201d he said. \u201cWe see job growth slowing, but it’s still at quite robust levels. We see the economy slowing a bit, but still, healthy growth levels.\u201d<\/p>\n The Fed chair pushed back against concerns that higher interest rates could damage the economy, pointing out that while rates are rising, they are doing so from a historically low starting point \u2014 the Fed held rates at near zero through much of the pandemic and of the last decade.<\/p>\n \u201cThere’s a lot going on,\u201d Powell said. \u201cThere are a lot of flows back and forth, but ultimately, it does appear that the U.S. economy is in a strong position, and well-positioned to deal with higher interest rates.\u201d<\/p>\n Unemployment increase expected<\/strong><\/p>\n As part of the post-FOMC meeting presentation, the Fed released its Summary of Economic Projections, which contains the committee members\u2019 expectations about a number of economic indicators over the coming years, one of which is the unemployment level.<\/p>\n Employment levels in the U.S. have been one of the major success stories of the pandemic recovery. After spiking to a post-World War II high of 14.7% in April 2020, the jobless rate in the U.S. began to plummet and hit 3.6% in May, just one-tenth of a percent above the level in the months before the pandemic.<\/p>\n Looking forward, though, the members of the FOMC expect that the U.S. unemployment rate will begin rising as interest rates rise, perhaps to above 4% by 2024, with inflation rates down to 2%.<\/p>\n \u201cA 4.1% unemployment rate, with inflation well on its way to 2%, I think that would be a successful outcome,\u201d Powell said.<\/p>\n \u201cWe don’t seek to put people out of work,\u201d he added. \u201cOf course, we never think too many people are working and fewer people need to have jobs. But we also think that you really cannot have the kind of labor market we want without price stability.\u201d<\/p>\n Recession worries remain<\/strong><\/p>\n In their efforts to tame inflation, Powell and his colleagues at the Fed have been aiming for what economists characterize as a \u201csoft landing.\u201d That is, a cooling of demand that slows price rises but does not reverse economic growth and push the country into a recession.<\/p>\n Asked about the likelihood of a soft landing on Tuesday, Powell said, \u201cThat is our objective, and I do think it’s possible.\u201d<\/p>\n However, he said that events such as supply shocks caused by Russia\u2019s invasion of Ukraine and pandemic-related lockdowns in major Chinese manufacturing hubs make predictions difficult.<\/p>\n \u201cEvents of the last few months have raised the degree of difficulty and created great challenges,\u201d he said, adding, \u201cThere’s a much bigger chance now that it will depend on factors that we don’t control.\u201d<\/p>\n Despite the Fed chair\u2019s assessment that it remains possible to avoid a recession, others said they were not convinced that getting back to 2% inflation by 2024 is possible any other way.<\/p>\n \u201cIt\u2019s hard to see how we get to that level without a recession,\u201d Bankrate\u2019s McBride told VOA.<\/p>\n","protected":false},"excerpt":{"rendered":" VOA \u2014 Amid a major stock market downturn, sharply rising inflation, and plummeting consumer confidence, the Federal Reserve Board interest rate-setting body decided Wednesday to raise interest rates by three-quarters of 1% in the hope of taming runaway prices. The decision by the Federal Open Market Committee (FOMC) to increase the target for the federal […]<\/p>\n","protected":false},"author":1,"featured_media":104018,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[10],"tags":[],"class_list":["post-104017","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latests"],"translation":{"provider":"WPGlobus","version":"3.0.2","language":"en","enabled_languages":["fa","en"],"languages":{"fa":{"title":true,"content":true,"excerpt":false},"en":{"title":false,"content":false,"excerpt":false}}},"_links":{"self":[{"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/posts\/104017","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/comments?post=104017"}],"version-history":[{"count":2,"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/posts\/104017\/revisions"}],"predecessor-version":[{"id":104020,"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/posts\/104017\/revisions\/104020"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/media\/104018"}],"wp:attachment":[{"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/media?parent=104017"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/categories?post=104017"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/PERSIAN-HERITAGE.COM\/en\/wp-json\/wp\/v2\/tags?post=104017"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}