Fed hikes interest rates by 0.75 percentage point for second consecutive time to fight inflation

The Federal Reserve raised its interest rate for the second time in a row on Wednesday in order to keep inflation under control. The fed funds rate has a direct impact on what banks charge each other for short-term loans, but it also feeds into a variety of consumer products. The funds rate has been increasing since December of last year. Markets largely expected the move after Fed officials telegraphed the increase in a series of statements. Even if it means slowing the economy, central bankers still want to bring down inflation. The Federal Open Market Committee warned that recent indicators of spending and production have weakened. The unemployment rate has remained low and job gains have been robust in recent months. The rate hike was approved unanimously after officials described inflation as "elevated" due to supply chain issues and higher prices for food and energy. Esther George advocated for a slower course with a half percentage point increase. In the year that began with rates floating around zero, the inflation measure has run at 9.1% annually. The Fed adjusted its inflation goal in 2020 so that it would run a bit hotter in the interest of full and inclusive employment. The unemployment rate was 3.6% in June. The Fed's standard of core personal consumption expenditures was 4.7% in May. There are risks to bringing down inflation. The U.S. economy is in danger of falling into a recession as inflation slows consumer purchases. Markets were bracing for a reading on the second quarter to be released Thursday that could show consecutive declines, which is a good sign for a recession. Thursday's reading is expected to grow by a small amount. The Fed is reducing the size of assets on its balance sheet. Some of the money from maturing bonds was allowed to roll off by the Fed. Since the beginning of the roll-off, the balance sheet has declined by just $16 billion, despite the Fed setting a cap of up to $47.5 billion that could have been wound down. The cap will hit $90 billion a month by September. Quantitative tightening is one of the mechanisms the Fed uses to impact financial conditions. The Fed is expected to raise rates at least one more time in September. The central bank was expected to go further with a third straight 0.75 percentage point increase in September according to traders. Jackson Hole, Wyoming, will be the site of the Fed's annual retreat in August. Markets expect the Fed to start cutting rates in the summer of next year. Multiple officials have said that they expect to hike aggressively through September. Despite the 1.5 percentage point increases between March and June, the June consumer price index reading was the highest since November 1981, with the rent index at its highest level since April 1986. When inflation first started to accelerate in 2021, the central bank was criticized for being too slow to tighten and for possibly going too far. In an interview with CNBC on Wednesday, Sen. Elizabeth Warren said she worried that the Fed hikes would cause economic harm to those at the lowest end of the economy.