With the US economy teetering on the brink of recession and inflation at a four-decade high, the Federal Reserve on Wednesday announced another three-quarters of a percentage point increase in its benchmark interest rates, the second such increase in just over a month.
In a statement, the Fed said it was “very alert to inflation risks.”
“Recent indicators of spending and production have softened. However, job gains have been robust in recent months and the unemployment rate has remained low. Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher food and energy prices, and broader price pressures,” the Fed said.
The central bank added that Russia’s war against Ukraine is “causing enormous human and economic hardship” as well as “further upward pressure on inflation” and is affecting global economic activity.
The US central bank is aggressively raising rates to levels not seen since the mid-1990s as it struggles to rein in rising prices, which rose at an annual rate of 9.1% in June , the fastest rate of inflation since 1981.
The hike raises the Fed’s cost of borrowing to between 2.25% and 2.5% and is the Fed’s fourth rate hike this year. It comes as central banks around the world seek to calm rising prices with higher rates. Fed Chairman Jerome Powell indicated that more outsized hikes are ahead if inflation is not controlled.
Powell said he did not believe the US was currently in recession, but that the Fed needed to slow growth to control inflation.
“We’re not trying to have a recession and we don’t think we should,” Powell said. “We believe we have a path to reduce inflation while maintaining a strong labor market.” But he said he expected the labor market to soften in reaction to the Fed’s moves and that it was essential that inflation be tamed. “Price stability is what makes the whole economy work,” Powell said.
So far, the rate hike appears to have done little to curb rising prices, and the costs of everything from food and rent to gas remain high. The Fed won’t meet again until September, when more economic data will be available, and its decision-making committee should be able to better see if its policy is working.
An important measure of the economy will be released Thursday, when the Commerce Department releases its latest survey of gross domestic product (GDP), a broad measure of the cost of a wide range of goods and services in the North’s economy. American Many economists expect growth to have slowed for the second straight quarter, a guideline used by many to declare a recession.
However, recessions are officially declared by the National Bureau of Economic Research (NBER), a research group that uses a wide range of measures, including job growth, to decide when employment is contracting. US economy. The NBER often makes its announcement long after a recession has begun, as it evaluates other economic factors.
Job growth remains strong: The US added 372,000 jobs in June and the unemployment rate remained low at 3.6%.
But for many, two months of declining GDP is a strong indicator that the economy is in recession. Michael Strain, director of economic policy studies and senior fellow at the right-wing American Enterprise Institute, noted this week that all of the last 10 US recessions have been preceded by two consecutive quarters of negative economic growth.
Question: Of the last 10 times that the US economy has experienced two consecutive quarters of negative economic growth, how many times was it officially declared a recession?
Answer: 10. pic.twitter.com/yrR1kwlC4r
— Michael R. Strain (@MichaelRStrain) July 25, 2022
With midterm elections looming and the Biden administration facing an uphill battle to retain control of Congress, the economy has become the central battleground.
Republicans have seized on the mixed economic data to blame the Biden administration for the slowdown, accusing Democrats of “redefining the recession and downplaying the economy’s red flags” in an “attempt to deny the cruel economy that have created.”