Fed raises interest rates for fifth time in 2022

The Washington Post reported on Wednesday, Sept 21, that the Federal Reserve interest rates for the fifth time this year. It will not back down from its fight against inflation even though aggressive moves to slow the economy will inevitably bring pain to households and businesses nationwide.

“We have got to get inflation behind us,” Federal Reserve Chair Jerome H. Powell told the Post. “I wish there were a painless way to do that. There is not.”

The message came after the central bank raised rates by three-quarters of a percentage point for the third time this year and released new economic projections showing a significant slowdown in the economy in late 2022 and 2023, which could mean a recession, job losses, higher credit costs or other unknown consequences. 

Still, Powell said letting inflation continue would be worse and that “delay is only likely to lead to more pain.” The bank’s new projections indicate that officials expect their year-long campaign to raise interest rates will have its intended effect soon. But Powell also said the Fed would “keep at it until it’s done” and gave no indication that the bank is ready to ease up on its policies.

This month’s rate hike was the fifth of the year, and the third consecutive three-quarter point hike. The Fed’s benchmark interest rate now sits between 3% and 3¼%, and officials expect it to cross 4% by the end of the year, well into “restrictive” territory, the Post said.

That rate does not directly control rates for mortgages and other loans, but it influences how much banks and other financial institutions pay to borrow, which helps drive loan pricing more broadly. The Fed held off on raising rates last year, top Fed leaders saying they believed the slow creep in inflation throughout 2021 would be temporary. It was not.

The Fed is among at least eight central banks worldwide expected to raise borrowing costs this week. Some worry the global economies will not be able to withstand such an extreme slowdown.

So far, the job market and consumer spending — two crucial economic engines — have stayed resilient through the Fed’s rate hikes. Officials expect the unemployment rate, currently 3.7%, will end the year at 3.8% before rising to 4.4% by the end of 2023, the newspaper said.

That would typically also portend a recession, which usually follows a half-point climb in the unemployment rate. But the labor market added 315,000 jobs in August, the Post reported.