The Riverside Press-Enterprise
Fed ups rate by quarter point
Powell says pieces of the fight to contain inflation are coming together, but more tightening possible
Federal Reserve officials raised interest rates to their highest level in 22 years, continuing their 16-month campaign to wrestle inflation lower by cooling the American economy even as they left the door open to further action if inflation showed signs of proving stubborn.
Officials pushed rates a quarter percentage point to a range of 5.25% to 5.5%, their highest level since 2001, in a unanimous decision.
Fed Chair Jerome Powell suggested in a news conference following the decision that while the “pieces of the puzzle” that could allow inflation to sustainably slow down are beginning to come together, policy had not been restrictive enough for long enough — and that the Fed was “prepared to further tighten” if necessary.
The Fed chief carefully kept the central bank’s options open at an uncertain economic juncture, one that offers reasons for both optimism and caution.
Fed policymakers began to raise rates from near-zero in March 2022 and pushed them up rapidly last year before adjusting them more slowly in 2023, even taking a break last month. Because officials think that rates are now high enough to weigh on the economy, they have been moving more gradually to give themselves time to see how growth, the job market and inflation data are responding to the shift in policy.
Powell said officials would be watching incoming data before the Fed’s Sept. 20 meeting to decide whether they need to raise interest rates further at that gathering. But he avoided explaining what precisely would prompt the Fed to either lift rates or hold them steady, noting that the Fed has eight weeks and a substantial amount of incoming data before it has to decide.
“We’ve come a long way,” Powell said at one point. “Inflation repeatedly has proved stronger than we and other forecasters have expected — and at some point that may change. We have to be ready to follow the data and given how far we’ve come, we can afford to be a little patient as well as resolute as we let this unfold.”
Higher interest rates cool the economy by making it more expensive to borrow money, discouraging business expansions and making it more expensive to take out a mortgage or a car loan. But it takes time for them to trickle through the economy, so the full effects of the moves so far most likely have not been fully felt. That makes it tough to gauge how high is sufficiently high. Policymakers want to make sure that they temper demand enough to put an end to rapid price increases, but they would prefer to avoid plunging the economy into a recession if they can avoid it.
“We’ve covered a lot of ground, and the full effects of our tightening have yet to be felt,” Powell acknowledged Wednesday, adding that the process of cooling inflation still has “a long way to go.”
After fluctuating higher and lower as Powell spoke, stocks across all three major indexes — the S&P 500, the Nasdaq Composite and the Dow — ended the day close to where they started. The S&P and Nasdaq posted modest losses. The Dow moved 0.2% higher to record its longest streak of daily gains since the 1980s.
Economists have recently become increasingly hopeful that the Fed might be able to slow inflation without causing an outright economic downturn, clinching what is often called a soft landing. Inflation has finally begun to subside notably at a time when hiring remains strong and the unemployment rate is hovering at very low levels. In a nod to that resilience, officials noted Wednesday that the economy was expanding at a “moderate” pace, an upgrade from “modest” in their June statement.
And the Fed’s influential staff economists — who help inform policymakers as they assess the outlook — no longer think America will fall into a recession late this year, Powell said. They previously had forecast a mild one.