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Fed Delivers Third Straight 0.75% Hike as Race to Restrictive Territory Heats Up

Economy Sep 21, 2022 02:10PM ET
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© Reuters

By Yasin Ebrahim

Investing.com -- The Federal Reserve delivered its third consecutive 0.75% rate increase on Wednesday and showed no sign of easing its push into restrictive territory as it battles to cool the embers of inflation.

The Federal Open Market Committee raised its benchmark rate to a range of 3% to 3.25% from 2.25% to 2.5% previously.

Following the latest rate hike, the Fed has now lifted its benchmark rate by 300 basis points, or 3% in just six months as the central bank accelerates policy to restrictive territory with the aim of slowing growth enough to make a meaningful dent in inflation. 

"We've just moved into the very, very lowest level of what might be restrictive [territory]," Powell said in the press conference that followed the monetary policy statement. "In my view, there's a ways to go." 

The Fed now sees its benchmark rate rising to 4.4% in 2022, above the 3.4% forecast in June, paving the way for further front-loading of rate hikes in the remaining two Fed meetings for the year and into 2023.

The central bank previously signaled that rates would peak at about 3.8% in 2023, with cuts likely to follow in 2024, but now the central bank is preparing to keep rates higher for longer.

Rates are now expected to reach 4.6% in 2023. In 2024, the voting Fed members forecast rates dropping to 3.9%, though that is still higher than the prior forecast of 3.4%.

The Fed’s hawkish stance has many convinced that the possibility of a hard landing, or recession won’t be enough to deter the central bank from persisting with tightening.

"We have always understood that restoring price stability while achieving a relatively modest increase in unemployment and a soft landing would be very challenging," Powell added. "Nonetheless, we're committed to getting inflation back down 2%."

The projections from the Fed's summary of economic projections appear to support Powell’s stance as inflation was revised higher and growth lower.

The core personal consumption expenditures price index, the Fed’s preferred measure of inflation, is forecast to climb to 4.5% in 2022, up from a prior forecast of 4.3%. For 2023, inflation is estimated to drop to 3.1%, compared with the prior forecast of 2.7%, while in 2024 inflation expectations are unchanged at 2.3%.

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the Fed said in a statement.

Fed members estimate the economy will grow 0.2% in 2022, down sharply from a prior forecast of 1.7%. Growth forecasts were also revised lower for 2023 and 2024 to 1.2% and 1.7% from 1.7% and 1.9%, respectively.

The Fed believes that the move to restrictive territory will weigh on consumer spending as rising unemployment keeps a lid on wages.

The central bank now sees the unemployment rate at 3.8% at year-end, up slightly from a prior forecast of 3.7%. But labor supply and demand may likely be restored in subsequent years, with unemployment expected to reach 4.4% in 2023 and remain unchanged the following year, according to the Fed's projections. That is above the prior June forecast of 3.9% and 4.1% unemployment in 2023 and 2024, respectively.

As well as rate hikes, the Fed’ balance sheet reduction, or quantitative tightening, plan is expected to further tighten financial conditions. Earlier this month, the Fed ramped up the pace of QT to $95 billion, up from $47.5 billion in June.

For some, the pace of the tightening has increased the risk of the Fed slowing growth by too much, pushing the economy into a deep recession.

“Clearly the risk is stacked towards exacerbating the slowdown into a hard landing. That is by far the bigger risk at the moment, and it increases with every rate raise into this slowing growth environment,” Will Rhind, founder and CEO, GraniteShares told Investing.com in a recent interview.

The threat of an imminent recession, however, remains unlikely, Rhind said, as the economy is “still in good shape, unemployment low, and consumers are still spending money.”

Fed Delivers Third Straight 0.75% Hike as Race to Restrictive Territory Heats Up
 

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Comments (64)
John XYZ
John XYZ Sep 21, 2022 10:26PM ET
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Can a too high FED rate contribute to next year inflation increase? There's always a correlation between selling prices and market money. Today it looks there is too much money available. Next year will be with 4 percent more money available. Last 2 months CPI was a total of 0.1 in US. That leads to a 0.6 per year if trend is maintained. It wan't but anyway, it looks we were on the right path. FED did not understood when need to stop and listen. All businesses that made efforts to keep prices unchanged, lower their income and help inflation fight was basically betrayed by FED. There's nothing stopping them to increase prices now.
Kris Jay
Kris Jay Sep 21, 2022 10:26PM ET
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no, fed rate increases reduce business activity and therefore reduce demand.   Fed is also removing $90B per month from economy, so there is less money, not more.   Inflation on the other hand can still go up when resources like oil and nat gas are scarce despite fed hikes.  without a fossil fuel plan and we still need fossil fuels despite the "EV and green energy only" mantra prices will continue to rise as every business is reliant on fossil fuels (Even Google who claims to be carbon free).  Similarly, when the influx of people into the US continues at a rate of 1M/yr, that creates demand on housing, food and healthcare services.  Fed hikes will not change that. The key is to run a country well, taking care of the people we already have,  recognizing that fossil fuels are key until a marketable and cost effective option is available.
Kris Jay
Kris Jay Sep 21, 2022 10:26PM ET
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fossil fuels create concrete, smelt iron and steel, move goods from China, transport lumber via rail and trucks and create plastics.   all items which rely on fossil fuels, prices will go up until demand in fossil fuels goes down - which will only happen in a far slower economy.    When SPR 1M/day stops prices will of fossil fuels will resume.
First Last
First Last Sep 21, 2022 10:26PM ET
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Kris Jay   "smelt iron" involves coal, and while that is a fossil fuel, should be discussed separately from oil/gas.
First Last
First Last Sep 21, 2022 10:26PM ET
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Kris Jay   (btw, steel is not smelted.)
N Zink
N Zink Sep 21, 2022 8:20PM ET
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The is, and always has been, an inverse correlation to interest rates and their effect to the market. When rates are low, stocks are generally higher. Likewise, when interest rates rise, the trends lower. With the Fed plans to raise rates into 2024. So, guess the prolonged direction of the stock market and the gauranteed recession. What's your thoughts?
Yellow Owl
Mystic_Owl Sep 21, 2022 8:20PM ET
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In an ideal world it should be a beautiful crash.
Kris Jay
Kris Jay Sep 21, 2022 8:20PM ET
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you are correct.  unfortunately for many traders who have come on the scene since 2005, they dont realize this.  there will be no V shaped market return.   moves lower, sideways,  elliott waves but will not return to 2021 highs for some number of years.  in fact most likely we will return to pre-pandemic market valuations, maybe even 2018 valuations.
Mehdi Captain Music
Mehdi Captain Music Sep 21, 2022 7:58PM ET
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Something rare and terrible is coming to the whole world.Note my CM
James Long
FauxNews Sep 21, 2022 7:25PM ET
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When rates hit 4.6%, many investors will move their money into long term fixed, safe instruments like Tbills. Why risk it all for a small percentage over what you can get safely. Then market will crash.
Kris Jay
Kris Jay Sep 21, 2022 7:25PM ET
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maybe even sooner, like 4.25%
Matt Kay
Matt Kay Sep 21, 2022 6:21PM ET
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do not expect inflation to decrease any time soon since fed balance sheet still at 9 trillion. inflation is intentional to keep stonks market up
Dan DuBois
Dan DuBois Sep 21, 2022 6:17PM ET
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At least wealthy people can get some sort of rate of return on their savings.
Darryl Allen
Darryl Allen Sep 21, 2022 6:17PM ET
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how? stocks, real estate, cash, all going down.
Tre Hsi
Tre Hsi Sep 21, 2022 6:17PM ET
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Darryl Allen  US stock markets have more than tripled since the last recession in 2009, so certainly the market can withstand even a 20% correction
hsu mel
hsu mel Sep 21, 2022 6:15PM ET
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Fed will induce a world wide recession you idiot. Inflation is not caused by overheated Economy.
dim dim
dim dim Sep 21, 2022 6:04PM ET
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O.K, interest rates are increasing, they reached close to 4% in the impoverishment of citizens and businesses, along with a recession, and the result is that inflation has not dropped even one unit. so there at the FED, keep sleeping... and when you wake up, let's see how much damage you will have done to the USA!!!
Brad Albright
Brad Albright Sep 21, 2022 6:04PM ET
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Dude, get your facts straight.
Cody Ditter
Cody Ditter Sep 21, 2022 6:04PM ET
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oh Lord, dim dim should enroll in econ 101 at his local community college!
Tre Hsi
Tre Hsi Sep 21, 2022 6:04PM ET
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Cody Ditter  this is what happened when one got his econ degree from Trump University.....
jose goncalves
jose goncalves Sep 21, 2022 6:00PM ET
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The ‘transitory’ guy is wrong again! Inflation could be over 10% in 2022! And it will persist much longer than he is forecasting!
jose goncalves
jose goncalves Sep 21, 2022 6:00PM ET
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Nobody trusts these guys anymore. Money printers!
Marco cuevas
Marco cuevas Sep 21, 2022 5:57PM ET
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Fed wants higher unemployment, Fed wants you to lose your job so you cant pay your bills, Fed makes the rich richer by increasing interest o credit cards and mortgages, Fed wants single mothers supporting 2 to 3 kids. Who do you think corporate America is going to fire...the executives? Yeah right THIS IS AMERICA.
Brad Albright
Brad Albright Sep 21, 2022 5:57PM ET
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Sounds horrible. You probably won't want to come here.
James Long
FauxNews Sep 21, 2022 5:57PM ET
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Amen. It's all in the book Dark Money.
Andrew Ulferts
Andrew Ulferts Sep 21, 2022 5:57PM ET
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Brad Albright Come here? You dems are so racist. Why would you assume he doesn’t live here? His name?
Brad Albright
Brad Albright Sep 21, 2022 5:57PM ET
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Andrew Ulferts I'm not a Democrat. Try again, please.
 
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