Fri, Jun 17, 2022 page11

• US unveils aggressive rate hike

  ‘BRACE YOURSELF’: An analyst called the US Fed’s outlook ‘fanciful,’ comparing it to the early 1980s when it raised interest rates up to 20 percent, leading to recession

  • AFP, WASHINGTON
  • • 
    • 
    • 

  The US Federal Reserve on Wednesday announced the most aggressive interest rate increase in nearly 30 years, and said it is prepared to do so again next month in an all-out battle to drive down surging inflation.

  The super-sized 0.75 percentage-point increase came with the Fed under intense pressure to curb soaring gas and food prices, which have left millions of Americans struggling to make ends meet and sent US President Joe Biden’s approval ratings plunging.

  US Federal Reserve Chairman Jerome Powell said that it was “essential” to lower inflation, and policymakers “have both the tools we need and the resolve it will take to restore price stability on behalf of American families.”

  

  A vendor sells corn along a busy street in Brooklyn, New York, on Wednesday.

  Photo: AFP

  He said that the goal is to achieve that without derailing the US economy, but added there is always a risk of going too far.

  The Fed’s policy-setting Federal Open Market Committee raised the benchmark borrowing rate to a range of 1.5 to 1.75 percent, up from zero at the start of the year.

  It was the first 75 basis-point increase since November 1994.

  Powell told reporters the move was “an unusually large one,” but does not expect “moves of this size to be common.”

  However, “from the perspective of today, either a 50 basis-point or a 75 basis-point increase seems most likely at our next meeting,” he said.

  “It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all,” he added.

  Wall Street loved the aggressive posture, closing sharply higher following Powell’s comments.

  Kansas City Federal Reserve Bank President Esther George, an inflation hawk, dissented from the committee vote, preferring a smaller, half-point increase.

  Until recently, the central bank seemed set to approve a 0.5 percentage-point increase, but economists say the rapid surge in inflation put the Fed behind the curve, meaning it needed to react strongly to prove its resolve to combat scorching price increases.

  Committee members now see the federal funds rate ending the year at 3.4 percent, up from the 1.9 percent projection in March, a median quarterly forecast showed.

  They also expect economic growth to slow to 1.7 percent this year from the previous 2.8 percent forecast.

  Powell said that “we are not trying to induce a recession now.”

  However, Diane Swonk of Grant Thornton LLP, a long-time Fed watcher, said that “it is not clear the economy will be as resilient as the Fed expects.”

  She called the central bank’s outlook “fanciful,” and compared the situation to the early 1980s when then-Fed chairman Paul Volcker drove interest rates up to 20 percent to choke off inflation, tumbling the economy into recession.

  “Brace yourself for what comes next. This is a Volcker-esque Fed. That means the Fed is willing to take a rise in unemployment and a recession to avert a repeat of mistakes of the 1970s,” she wrote on Twitter. “Growing up in Detroit, I remember that period well. It was ugly with deep scars.”

  US gasoline prices have topped US$5 per gallon for the first time and are setting new records daily.

  Economists thought March was the peak for consumer price hikes, but the inflation rate spiked again last month, jumping 8.6 percent in the past 12 months.

  The Fed was caught off guard with the speed of the price increases, and while policymakers usually prefer to clearly telegraph any policy shift to financial markets, the latest data changed the calculus.
• Most Popular

  • 1

    PRC likely to launch drills after National Day speech

  • 2

    US military declines to fire adopting Marine Mast

  • 3

    Formosan black bear punching Winnie the Pooh badge a hit at Japan festival

  • 4

    Taiwan ranked world's 14th richest country

  • 5

    Most willing to defend Taiwan: survey