The Federal Reserve Bank’s latest vote to raise interest rates is the eighth time that the central bank has increased rates over the past year.
The central bank’s policy-making Federal Open Market Committee voted unanimously to increase the benchmark rate by a quarter of a percentage point.
Many economists fear that a recession remains possible — and with it, job losses that could cause hardship for poor and working class households that have already hurt by inflation. Over the past year, consumer inflation in the United States rose 6.5% — a figure that reflects a sixth straight monthly slowdown but still uncomfortably high.
The decision was met with broad condemnation by worker advocates.
“Today’s interest rate hike by the Fed is bad news for the American economy. It’s true that raising rates is meant to solve inflation, but that doesn’t mean it’s the correct course to take right now,” said Morris Pearl, the chair of the Patriotic Millionaires. “Raising rates may cool inflation, but it does so by making everything from mortgages to credit card payments more expensive, which hurts those already suffering the most in today’s cost of living crisis.”
“In this case, the cure may be worse than the disease,” said Pearl, a former managing director at BlackRock, Inc.
“The action brings the cost of borrowing money to the highest level in 15 years as part of an ongoing effort to ease inflation but making credit more expensive will do nothing to alleviate supply chain issues or corporate greed, the two biggest reasons Americans are confronted with excess cost increases,” said Lisa McCormick, a progressive Democrat in New Jersey.
The Federal Reserve rate hike will make it even more expensive to borrow for homes, autos, and other purchases. But the fraction of the population that has money to save, will earn more interest on it.
“The Federal Reserve’s ‘dual mandate’ is meant to balance the risks of inflation versus the benefits of fast growth and low unemployment,” said Josh Bivens, the director of research at the Economic Policy Institute (EPI). “Right now, the benefits of low unemployment are enormous, and the risks of inflation are retreating rapidly.
“It is time for the Fed to stand pat on interest rate increases and wait to see how the lagged effects of past increases enacted in 2022 will filter through to the economy,” said Bivens. “Continuing to raise rates in the early stretches of 2023 will be a clear mistake and pose an unneeded threat to growth in the next year.”
Much stronger-than-expected U.S. job growth is forcing Wall Street to recalibrate expectations for how much more hawkish the Federal Reserve will be in its fight against inflation.
“We can now say I think for the first time, that the disinflationary process has started,” said Federal Reserve Chair Jerome Powell, who stressed that it was too soon to declare victory over the worst inflation in four decades: “We will need substantially more evidence to be confident that inflation is on a long, sustained downward path.”
The Fed’s latest rate increase, though smaller than its half-point hike in December and the four three-quarter-point hikes before that, will likely elevate the risk of a recession by raising the costs of many consumer and business loans.