The Federal Reserve announced on Wednesday that it was raising its short-term borrowing rate by an additional 0.75% to slow key sectors of the economy and rein in inflation, which is at its highest level in 40 years.
The central bank said its new target range was 3.75% to 4%, the highest level since January 2008.
The aggressive move is the latest in a series of borrowing cost increases imposed by the Fed in recent months as it tries to dampen price increases by cooling the economy and stifling demand. This approach, however, risks tipping the United States into a recession and putting millions of people out of work.
The fourth rate hike of 2022 also comes less than a week before the midterm elections.
“Russia’s war against Ukraine is causing enormous human and economic hardship. The war and related events are creating additional upward pressure on inflation and weighing on global economic activity. The Committee is very attentive inflation risks,” Fed officials said in a statement. “The Committee anticipates that continued increases in the target range will be appropriate in order to achieve a monetary policy stance tight enough to bring inflation down to 2% over time.”
Consumer price data released last month showed costs rose 0.4% on a seasonally adjusted basis in September, defying efforts to lower prices. Overall consumer prices rose 8.2% in the 12 months to September, beating economists’ forecasts.
The Federal Reserve is expected to raise the benchmark interest rate by 0.75%, repeating the same hike it has imposed at each of the past three meetings, according to a Bloomberg survey of economists. Prior to this year, the Fed had last matched a hike of this magnitude in 1994.
Federal Reserve Chairman Jerome Powell has repeatedly reiterated the central bank’s commitment to bringing inflation back to a target rate of 2%, saying that in September the Fed plans to offer “continued increases ” of its reference interest rate.
The personal consumption expenditure price index — the Fed’s preferred measure of inflation — sits at a year-over-year growth rate of 5.1%, government data showed the week last.
“Powell has been very clear that inflation is unacceptable and that we need to stay the course to bring it down,” Anne Villamil, an economist at the University of Iowa, told ABC News. “The markets kind of hoped we could take a break – I don’t see that happening.”
Despite persistent inflation, mounting evidence suggests that the Fed’s decisions have dampened some economic activity.
Mortgage rates hit a 20-year high last week as the United States faces a continued slowdown in home sales and housing construction.
Employment growth held steady but showed signs of slowing.
US employers added 263,000 jobs in September and the unemployment rate edged down from 3.7% to 3.5%, beating expectations and demonstrating continued strength in the labor market.
But the total is well below typical jobs added in any given month in 2022. Monthly job growth has averaged 420,000 so far this year compared to 562,000 per month in 2021, according to the Ministry of Labour.
Meanwhile, hirings and quits fell slightly in September, suggesting that employers’ demand for labor has started to decline, according to government data released on Tuesday. However, the number of jobs to be filled increased in September, a sign that the need for labor remains robust.
While some data points to an economic slowdown, a government report released last month showed significant economic growth in the three months ending in September. US gross domestic product grew 2.6% during this period; on the other hand, economic activity fell by 2.2% during the first six months of the year.
“We’re getting these very mixed signals,” Villamil said. “That’s why the Fed has a tough job.”