'We will keep at it': Powell says interest rate hikes will continue until prices stabilize
WASHINGTON (TND) — For the third time in a row, the Federal Reserve raised benchmark interest rates by 75 basis points in an effort to fight inflation. Members anticipate more rate hikes will be necessary.
The Fed pointed to supply and demand imbalances related to the pandemic and elevated food and energy prices as drivers of inflation, which currently sits at an annual rate of 8.3%. The economic fallout of the war in Ukraine is also exacerbating inflationary pressures.
"Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity," the Federal Open Market Committee statement said.
Wednesday's announcement followed a worse-than-expected August inflation report, which revealed a slight decline in headline inflation with a rise in core inflation.
As Russia doubles down on its aggressive tactics heading into winter, food and energy prices are difficult to predict. Wednesday marked the end of a 98-day streak of declining gas prices, with the national average for a gallon of regular now sitting at $3.68, according to AAA.
"We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply," Chair Jerome Powell told reporters following Wednesday's announcement.
However, critics of the Fed accuse them of waiting too long to ease off of emergency pandemic monetary policy, arguing they now have no choice but to act more aggressively than they would have if they'd acted sooner. Higher interest rates affect things like credit card debt and taking out loans more expensive.
"We understand that our actions affect communities, families and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals," Powell said.
Omnia Family Wealth chief operating officer and co-founder Michael Wagner recommends that people "deleverage" as interest rates rise.
“It’s really important if you have credit card debt to really get on top of it today and as soon as you can. Rates have gone up dramatically since even a year ago, so if you’ve been carrying a balance that’s getting more expensive, too," Wagner said.
Wagner said the most important thing is to not make decisions based on panic. He suggests if a person is able, that they continue to invest and follow through on a planned home or vehicle purchase.
"This is the world that we’re in today and I would hate for you to wait and see rates go even higher with the hope that maybes prices will come down," Wagner said.
According to newly released data from the National Association of Realtors, the median existing home price in August was 7.7% higher than a year ago, despite seven consecutive months of declining sales.
"Inventory will remain tight in the coming months and even for the next couple of years. Some homeowners are unwilling to trade up or trade down after locking in historically-low mortgage rates in recent years, increasing the need for more new-home construction to boost supply," NAR chief economist Lawrence Yun said in a release.
Slowdowns like that have added to fears that a recession is imminent.
During a hearing before the House Committee on Financial Services Wednesday, JPMorgan Chase CEO Jamie Dimon told lawmakers the American consumer is "actually in rather good shape."
"They’re spending money, 10% more than prior years. They have a good balance sheet. Their debt balances are low. Their confidence levels are going up. Jobs are plentiful. I think it’s a good thing that wages have gone up for the lower end," Dimon said.
He acknowledged this is being met by factors we don't know the full effects of yet, like Russia's war, rising oil prices, higher interest rates, and overall inflation.
Dimon, who earlier this year warned of economic "storm clouds," hesitated when asked about his current outlook.
“I do not like to make forecasts. I do not think I’ve ever seen anyone forecast the future properly. I look at probabilities," Dimon said. "I think there’s a chance — not a big chance, a small chance — of a soft landing. There’s a chance of a mild recession, a chance of a harder recession and because of the war in Ukraine and the uncertainty that causes in global energy supply and food supply, there’s a chance it could be worse.”
