The Federal Reserve has decided to raise interest rates to their highest level in 22 years as the fight to restrain inflation continues.
Federal Reserve chair Jerome Powell explained in a Wednesday press conference that the benchmark lending rate would be increased by a quarter of a percentage point to 5.5 percent, marking the eleventh hike in 17 months. Powell expressed confidence that a “soft landing” is, for the most part, achievable — meaning inflation can be curbed without triggering a recession.
Inflation remains above the 2 percent target, but many observers think this will be the last rate hike. However, Powell did not make promises either way, with another meeting scheduled for September.
According to Powell, the economists on the Federal Reserve’s staff have noted a slower economic growth rate for the next half year. However, “given the resiliency of the U.S. economy recently, they are no longer forecasting a recession.”
The nonpartisan Congressional Budget Office made the same forecast on Wednesday. Gross domestic product is projected to rise at a 0.4 percent annual rate in the second half of this year, representing a slowdown but not a recession. It will steadily improve in 2024, and into the following year, the CBO added.
The CBO projected that inflation will slowly decline in the next three years. Further, it projects unemployment will tick up to 4.1 percent by the end of 2023, and increase to 4.7 percent by the end of 2024, before leveling out at 4.5 percent by the end of 2025.
The hikes will be felt via increased credit card rates and more expensive loans for those buying new houses and cars. Students taking on new debt may also see their rates increase. Analysts have suggested that small businesses and community banks will be squeezed further.
Despite the pickup in unemployment and the pressure the higher interest rates will exert on consumers, Powell said he saw a pathway to a relatively painless slowdown, though he was not ready to use the term “optimism.”
While the Fed’s aggressive actions are controlling inflation, critics of rampant spending have pointed to the outlays of these last few years as the reason the country is in its present situation.
In June, the CBO projected that the nation’s public debt would skyrocket in the next 30 years, which would have harmful effects on economic growth.