Federal Reserve raises interest rates 0.75 percentage point in another move to aggressively fight high inflation
The economy is already pulling back. In a statement after a two-day meeting, the Fed said, “Recent indicators point to modest growth in spending and production” but “job gains have been robust….and the unemployment rate has remained low.”2-year Treasury yield and stocks react
Yields on 2-year Treasury notes ticked down to around 4% after jumping above 4.1% earlier, the highest level since 2007. Wednesday’s rate increase of 0.75 percentage point is expected to reverberate through the economy, driving up rates for credit cards, home equity line of credit and other loans. Fixed, 30-year mortgage rates have jumped above 6% from 3.22% early this year.
Markets that try to predict where rates are headed figured there was an 18% chance Fed policymakers would hoist rates by a full percentage point Wednesday.But Goldman Sachs economist David Mericle says little has changed since Fed Chair Jerome Powell told reporters in late July that the pace of rate hikes probably would slow to account for the increased risk of recession.
And the Fed’s preferred measure of annual inflation – which is different than the CPI – is expected to decline from 6.3% in August to 5.4% by the end of the year, slightly above Fed officials’ previous 5.2% forecast, and 2.8% by the end of 2023. That would be moderately above the Fed’s 2% target.
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