Filed Under: Business

Fed’s historic interest rate hike aims to cool inflation, could crash economy

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The Federal Reserve announced Wednesday it’s hiking its benchmark interest rate by 50 basis points, the second hike in two months and the largest one-time hike since the year 2000. With inflation now running at a 40-year high after two years of pandemic-driven monetary policy, the Fed is trying to tamp down without triggering a recession or high unemployment.

“I’ll say it, I do expect that this will be very challenging, it’s not going to be easy,” Federal Reserve Chair Jerome Powell said.

More often than not, this attempt at a “soft landing” — where the Fed tightens the rate to at least neutral without triggering a recession — fails. In fact, the Fed has only achieved it once in nine attempts since the 1960s, according to analysis by investment bank Piper Sandler.

“No one thinks this will be easy, no one thinks it’s straightforward but there’s certainly a plausible path to this,” Powell said. “It’s a strong economy and nothing about it suggests that it’s close to or vulnerable to a recession.”

Powell and the Fed’s path includes more double-sized rate hikes, which he said are on the table the next two Fed meetings in June and July. What’s off the table for now, he said, is a triple-sized hike of 75 basis points.

The news of an aggressive — but not too aggressive — Fed strategy for cooling inflation had markets rallying throughout Powell’s remarks Wednesday afternoon, but those gains completely erased by midday Thursday.

“Getting supply and demand back in balance is what gives us 2% inflation, which is what gives the economy a footing where people can lead successful economic lives and not worry about inflation,” Powell said. “So yes, there may be some pain associated with getting back to that, but the big pain over time is in not dealing with inflation and allowing it to become entrenched.”

Consumer prices in March climbed to a new 4-decade high of 8.5%, which some economists believe will be the peak of inflation. The Labor Department is expected to release April’s inflation numbers on May 11.

SIMONE DEL ROSARIO: LOOK IT’S HARD TO STICK A SOFT LANDING.

JUST ASK THE FEDERAL RESERVE.

JEROME POWELL: i’ll say it i do expect that this will be very challenging it’s not going to be easy.

SIMONE DEL ROSARIO: THIS MONTH THE FED IS HIKING ITS BENCHMARK INTEREST RATE BY A HALF PERCENTAGE POINT. THE SECOND HIKE IN TWO MONTHS AND THE LARGEST ONE-TIME HIKE SINCE THE YEAR 2000.

JEROME POWELL: as we raise interest rates demand moderates.

SIMONE DEL ROSARIO: THE FED’S TRYING TO TAMP DOWN ON 40-YEAR-HIGH INFLATION WITHOUT TRIGGERING A RECESSION OR HIGH UNEMPLOYMENT.

A SOFT LANDING FOR THE ECONOMY, IF YOU WILL.

BUT MORE OFTEN THAN NOT – THAT ATTEMPT FAILS.

IN FACT, THE FED HAS ONLY ACHIEVED A SOFT LANDING ONCE IN NINE ATTEMPTS SINCE THE 1960S, ACCORDING TO ANALYSIS BY INVESTMENT BANK – PIPER SANDLER.

WILL THIS TIME BE DIFFERENT?

JEROME POWELL: no one thinks this will be easy no one thinks it’s straight forward but there’s certainly a plausible path to this.

SIMONE DEL ROSARIO: THAT PATH – INCLUDES MORE DOUBLE-SIZED RATE HIKES. CHAIR JEROME POWELL SAYS THOSE ARE ON THE TABLE THE NEXT TWO FED MEETINGS IN JUNE AND JULY.

WHAT’S OFF THE TABLE FOR NOW, IS A TRIPLE-SIZED HIKE OF 75 BASIS POINTS.

AND THAT NEWS OF AN AGGRESSIVE – BUT NOT TOO AGGRESSIVE – FED STRATEGY FOR COOLING INFLATION, HAD MARKETS RALLYING THROUGHOUT HIS REMARKS…BEFORE GIVING BACK SOME OF THOSE GAINS THE NEXT DAY.

JEROME POWELL: getting supply and demand back in balance is what gives us 2% inflation which is what gives the economy a footing. so yes there may be some pain associated with getting back to that but the big pain over time is in not dealing with inflation and allowing it to become entrenched.

SIMONE DEL ROSARIO: TO LEARN HOW THE FED HIKES IMPACT YOUR OWN FINANCES – CHECK OUT MY WORD ON THE STREET ON THE FEDERAL FUNDS RATE.

IN NEW YORK FOR JUST BUSINESS I’M SIMONE DEL ROSARIO.

The Federal Reserve announced Wednesday it’s hiking its benchmark interest rate by 50 basis points, the second hike in two months and the largest one-time hike since the year 2000. With inflation now running at a 40-year high after two years of pandemic-driven monetary policy, the Fed is trying to tamp down without triggering a recession or high unemployment.

“I’ll say it, I do expect that this will be very challenging, it’s not going to be easy,” Federal Reserve Chair Jerome Powell said.

More often than not, this attempt at a “soft landing” — where the Fed tightens the rate to at least neutral without triggering a recession — fails. In fact, the Fed has only achieved it once in nine attempts since the 1960s, according to analysis by investment bank Piper Sandler.

“No one thinks this will be easy, no one thinks it’s straightforward but there’s certainly a plausible path to this,” Powell said. “It’s a strong economy and nothing about it suggests that it’s close to or vulnerable to a recession.”

Powell and the Fed’s path includes more double-sized rate hikes, which he said are on the table the next two Fed meetings in June and July. What’s off the table for now, he said, is a triple-sized hike of 75 basis points.

The news of an aggressive — but not too aggressive — Fed strategy for cooling inflation had markets rallying throughout Powell’s remarks Wednesday afternoon, but those gains completely erased by midday Thursday.

“Getting supply and demand back in balance is what gives us 2% inflation, which is what gives the economy a footing where people can lead successful economic lives and not worry about inflation,” Powell said. “So yes, there may be some pain associated with getting back to that, but the big pain over time is in not dealing with inflation and allowing it to become entrenched.”

Consumer prices in March climbed to a new 4-decade high of 8.5%, which some economists believe will be the peak of inflation. The Labor Department is expected to release April’s inflation numbers on May 11.

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