Fed Approves 0.75-Point Interest Rate Hike – Highest Rates Since 2008
On Wednesday, 2nd of November, the Federal Reserve approved an increase in interest rates by 0.75% for the fourth consecutive time, bringing rates to their highest since 2008 in an effort to combat inflation.
The decision came at the end of a two-day meeting of the Federal Open Market Committee but has been described as one of the toughest policy moves since the 1980s and could increase the economic suffering of millions of hard-working Americans.
Another Recession Imminent?
In an unsettling but likely causal coincidence, the last time rates were this high was in January 2008, shortly before the housing crisis and one of the worst recessions in American history. People are already predicting that this massive rise in interest rates over such a short period of time will trigger another economic recession.
#Powell said he'd prefer to over-tighten to beat #inflation as it will be easy for the #Fed to use its tools to stimulate the #economy if it weakens too much. Powell doesn't get it. Planned rate hikes and QT will only succeed in crashing the economy, not bringing down inflation.
— Peter Schiff (@PeterSchiff) November 2, 2022
Even the chairman of the Federal Reserve, Jerome Powell, acknowledged that the chances of cooling the inflation rate without entering a recession were becoming slimmer, though he did say they were still possible. “The inflation picture has become more and more challenging over the course of this year,” he said. “That means we have to have policy be more restrictive, and that narrows the path to a soft landing.”
Despite his optimism that the path to a reduction in inflation without a recession is still possible, he did say that interest rates could increase even further in the near future and that the Fed has “some ways to go” in taming these inflationary prices. “Data since our last meeting suggests that the ultimate level of interest rates will be higher than expected.” The key points from his 45-minute speech have been summarized in this video.
No pivot: Thats the key msg from yday's #Fed presser.
This dictates near term markets. Given 2M impressions(!!!) of yday's tweet on the Q&A section suggests sig interest & most dont have time to watch 45 mins, heres the key points summarized to a 1m 45s vid$SPY $QQQ #macro pic.twitter.com/GiLz2BfvI5
— Andy West (@HedgeQuartersHQ) November 3, 2022
Steep Increases May Continue
We can see from the graph below how steep the increase has been over the past eight months. If things are going to get worse before they get better, that graph will look even worse in a few months. The key aspect that everyone is concerned about is reducing inflation, which has been worsening the cost of living crisis in the US and worldwide. Raising interest rates so steeply puts the squeeze on families without fixed-rate mortgages, vastly increasing their monthly payments.
In a rare move, the Fed included a new section in their November statement. The Federal Open Market Committee–the policymaking arm of the central bank–stated that it “anticipates that ongoing increases in the target range will be appropriate to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
The inclusion of the phrase “over time” may suggest that the Fed will move away from these aggressive hikes in interest rates and move to a smoother, albeit longer-term, increase. This would be preferable for many people, as there is a suggestion that these aggressive interest hikes could damage the economy unnecessarily, particularly where Wall Street is concerned. People have already been making light of the situation, posting their belief that the stock market will tank due to this news.
https://twitter.com/WallStreetSilv/status/1587815999617003520?s=20&t=uRSK-lM59wQ4Uso9I1tJ7Q
With inflation still skyrocketing, mortgage rates increasing to levels not seen for two decades, and new home sales dropping nearly 11% in September alone., winter is surely coming. However, it’s always darkest before dawn, and with wages and salaries increasing by 1.2% in the third quarter, some hope remains for us.
