The U.S. Federal Reserve increased the federal funds rate by 75bps on Wednesday to control inflation and stabilize the American economy. After increasing the benchmark rate 50 bps in March, the U.S. central banks has increased the rate by a third time.
Fed Increases Rate by 75 bps to Tame Inflation. Central Bank Says “Inflation Remains Elevated”
The U.S. Federal Reserve raised its federal funds rate by 75 basis points Wednesday afternoon (ET) due to rising inflation. This was the second consecutive 75-bps increase.
Recent indicators of production and spending have slowed down. “Despite this, job gains have been strong in recent months and the unemployment rate remains low,” the Fed stated Wednesday in a press release. “Inflation remains elevated due to supply and demand imbalances, increased food and energy prices, wider price pressures, and the pandemic.”
This move is in line with the latest Consumer Price Index (CPI), which noted that CPI data showed a 9.1% increase year-over-year. CPI data for June showed the highest annual rate of growth since 1981.
It comes also after the recent debate about the technical definitions of “recession”. This week, the White House published two blog entries that claimed that a second quarter of negative gross domestic products (GDP) does NOT indicate that the U.S. has entered a recession.
One of the blog posts by the Biden administration featured Treasury secretary Janet Yellen, who stated that it was not the “technical definition of a depression” despite websites such as Investopedia describing it as a depression and economic resource and business cycle textbooks.
In a blog post, Paul Krugman stated that after the comments by Yellen and the White House regarding a recession, he “ignores the two-quarter rule… We might be in a recession but we’re not in one now.” After Krugman’s incorrect assessment of inflation, this is what Krugman said.
The U.S. central banking claimed that Russia was hurting the global economic system during this month’s Fed meeting. On Wednesday, members of the Federal Open Market Committee (FOMC), stated that Russia’s war against Ukraine was causing enormous economic and human hardship. “The war and its related events have created additional upward pressure on inflation, and are affecting global economic activity. The committee is very attentive to inflation risks.
In addition to the Fed’s rate hike, Senator Elizabeth Warren (D–Mass) published a blog post via Wall Street Journal which stated that the U.S. central banks could cause “a devastating recession.”
“If the Fed cuts too much or too abruptly, the resulting recession will leave millions of people–disproportionately lower-wage workers and workers of color–with smaller paychecks or no paycheck at all,” Warren’s op-ed details.
Federal Reserve released a press release stating that the Federal Reserve will continue to support maximum employment and inflation at 2% per year over the long-term. “In support these goals, the Committee raised the federal funds target range to 2-1/4 to 2/2 percent and anticipates that continued increases in this range will be appropriate.”