Hiking The Rate Range

The Federal Reserve raised interest rates by a quarter-point today, and expects several more rate hikes in the months ahead as part of combating inflation.

The Federal Reserve on Wednesday approved its first interest rate increase in more than three years, an incremental salvo to address spiraling inflation without torpedoing economic growth.

After keeping its benchmark interest rate anchored near zero since the beginning of the Covid pandemic, the policymaking Federal Open Market Committee said it will raise rates by a quarter percentage point, or 25 basis points.


That will bring the rate now into a range of 0.25%-0.5%. The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing and credit. Fed officials indicated the rate increases will come with slower economic growth this year.

Along with the rate hikes, the committee also penciled in increases at each of the six remaining meetings this year, pointing to a consensus funds rate of 1.9% by year’s end. That is a full percentage point higher than indicated in December. The committee sees three more hikes in 2023 then none the following year.

The rate rise was approved with only one dissent. St. Louis Fed President James Bullard wanted a 50 basis point increase.

The committee last raised rates in December 2018, then had to backtrack the following July and begin cutting.

 

It's the right thing to do, mainly because former Clinton and Obama Treasury Secretary Larry Summers thinks it's a horrible idea that will push us into stagflation.