US Central Bank considers massive rate hike to counter price hike


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The Federal Reserve is set to raise borrowing costs on Wednesday amid a worrying acceleration in inflation, with the only question being whether officials will opt for the largest hike in nearly three decades or a smaller step.

It looked like the central bank would hike interest rates again by 0.5 percent, but the rebound in consumer and producer prices in May has fueled growing speculation of a 75 basis point hike.

While some economists argue that such an aggressive move would signal growing panic among policymakers, who are generally unwilling to surprise financial markets, others argue that the Fed is behind the curve and above inflation. A strong reaction is required to prove your determination to act.

“It’s possible that the only way for the Fed to surprise markets until Wednesday is to hike rates by 50 basis points,” Harvard economist and former White House adviser Jason Furman tweeted.

If policymakers decide to take a bigger step, it would be the first 75 basis point hike since November 1994.

The policy-making Federal Open Market Committee is due to announce a rate decision at 18:00 GMT after two days of deliberations.

Fed Chair Jerome Powell will hold a press conference after the meeting to provide more details on the central bank’s plans.

President Joe Biden has wholeheartedly supported the Fed’s fight against the sharpest rate hike in more than 40 years as he sees inflation eroding his popularity and diverting attention from other milestones, including the rapid recovery of the world’s largest economy and record job growth.

Feds began raising interest rates to zero in March as huge US consumer demand for homes, cars and other goods collided with transportation and supply chains in parts of the world where Covid-19 lingered – and persisted. There was a challenge.

This fueled inflation, which worsened dramatically after Russia invaded Ukraine in late February and Western countries responded by imposing tough sanctions on Moscow, sending food and fuel prices soaring.

US gasoline prices have surpassed $5.00 a gallon for the first time ever and are setting new records every day.

Economists thought March was the peak of consumer price growth, but the rate rose again in May, rising 8.6 percent over the past 12 months, and wholesale prices also rose, almost exclusively for energy, particularly gasoline. because of rising costs.

The Fed was surprised by the pace of price hikes, and while policymakers generally prefer to clearly signal any policy changes in financial markets, the latest data has changed calculations.

Powell pointed out that policymakers stand ready to make another half-point hike in the benchmark interest rate this week and next month to ease sweltering inflation without plunging the economy into recession and the decline of the 1970s. Stillness should be avoided.

“The 75 basis point hike … will be about giving people/markets confidence that they are serious about continuing to push rates higher into 2023,” Furman said.

Markets are now pricing in an aggressive stance with at least a three quarter point gain through the end of the year and four more sessions.

Former New York Fed Bank Chairman William Dudley expects outsized growth.

“Fed officials are a little worried about a loss of credibility,” he told a Wall Street Journal event.

But neither the Fed nor the White House can directly influence the many factors driving price increases.

Biden on Tuesday blamed Russia for the inflation plaguing countries around the world and criticized Republicans for blocking efforts to help American families feel the pain.

“Inflation is taking the strength out of many families,” he told unions in Philadelphia. “The Republicans in Congress are doing everything they can to stifle my cost-cutting plans.”




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