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Utilities.Ĭhanging the target for the federal funds rate is one of the few tools the central bank can employ to stabilize an overheated economy and moderate demand for goods, which can reduce inflation.įor months, Powell and other Fed officials have been repeating over and over that the four-decade highs in U.S. The short answer: To get record-high inflation under control.Īmericans have been slammed by double-point percentage increases on the prices of just about everything they need to survive: Food.
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Unfortunately for stretched consumers, inflation can take a long time to get under control, and it may take several months for the Fed’s moves to work their way into the economy-although some financial effects of its policies, such as higher interest rates on borrowed money, can be felt more quickly Read more: The Personal Consumption Expenditures (PCE) Price Index Note that is hotter than the 4.3% forecast made back in March. Fed economists estimate that PCE inflation will remain high, but should decline to 5.2% by the end of 2022. The latest PCE reading showed consumers are paying prices up 6.3% over the prior 12 months. “There’s probably significant additional tightening in the pipeline.”
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“These rate hikes have been large and have come quickly and it’s likely that their full effect hasn’t been felt by the economy,” Powell said. Federal Reserve Chair Jerome Powell said in a press conference following the latest announcement that another “unusually large” rate hike could “be appropriate” at the next meeting in September. The FOMC will meet three more times in 2022. But it’s more bold than the smaller hikes that started the year, indicating the Fed’s desire to get inflation under control as soon as possible. The Fed’s decision today is not as aggressive as the 100 bps increase that had been rumored for the FOMC’s latest meeting. This move follows a 75 basis-point hike in June and two smaller rate hikes at the March and May Federal Open Market Committee (FOMC) meetings-all part of the central bank’s strategy to fight stubbornly high inflation. On July 27, the Federal Reserve announced another big rate hike, raising the federal funds rate by 75 basis points (bps), to a range of 2.25% to 2.5%.