The Federal Reserve continued its campaign of rapid interest rate increases on Wednesday, pushing up borrowing costs at the fastest pace in decades.
Fed officials voted unanimously at their July meeting for the second supersized rate increase in a row, a three-quarter-point move, and signaled that another large adjustment could be coming at their next meeting in September. On Wednesday, the Fed decided to keep its policy rate at a range of 0.25 to 2.5 percent.
The central bank wants to slow the economy by making it more expensive to borrow money to buy a house or expand a business, which will affect the housing market and the economy as a whole. Powell said during a news conference after the meeting that a cool-down was needed to allow supply to catch up with demand.
Mr. Powell said that the Fed's policy changes were likely to hurt the economy. Some Democrats believe that crushing the economy is a crude way to lower inflation. The Fed chair said that the economic sacrifice today was necessary to put America back on a sustainable path.
Mr. Powell said that growth needs to be slowed. Price stability is what makes the economy work and we don't want this to be bigger than it needs to be.
The stock market surged after the Fed made its decision. The central bank is determined to crush inflation and interest rates are likely to increase this year.
Between now and the September meeting, there is a lot of information, and I think markets will adjust. It is going to come down to whether inflation gives the Fed enough time to slow down.
The Fed began raising interest rates from near-zero in March, and policymakers have picked up the pace sharply since in reaction to incoming economic data.
The central bank raised rates by half a point in May and three quarters of a point in June, which was the largest step since 1994. In September, officials could keep raising rates, or they could slow them down.
Mr. Powell said that there could be another large rate increase. That is not a decision we have taken.
It's a toll on people. The Fed sets off a domino effect by raising the federal funds rate. A number of consumer borrowing costs go up.
The consumer loans are for people. Consumers can expect to pay more on their debt if credit card rates change. The rates for car loans are expected to go up too. Student loan borrowers should expect to pay more.
There are mortgage loans. Mortgage rates don't move in a straight line with the federal funds rate, but track the yield on the 10-year Treasury bond, which is influenced by inflation and how investors expect the Fed to react to rising prices Freddie Mac says the 30-year fixed-rate mortgage has gone up from 3 percent to 5 percent in the past year.
The banks have money. Banks pay more interest on deposits when the Fed rate goes up. Online banks have begun raising some of their rates due to the fact that larger banks are not likely to pay consumers more.
The path of interest rates that the Fed outlined earlier this year is reasonable, according to Mr. Powell. He said that the Fed will likely raise borrowing costs to a more restrictive level.
The investors were appeased by the recognition that the rate increases will eventually slacken. The S&P 500 stock index ended the day with a gain of 2.6 percent. Markets can change their minds at any time. The S&P 500 has fallen the day after the Fed raises rates twice in the past.
It will be appropriate to slow down at some point. The data will be used to guide us.
The data is still worrying when it comes to inflation.
In the year through June, consumer prices increased by 9.1 percent, with costs rising quickly across a wide range of goods and services, from food and fuel to rent and dry cleaning.
On Friday the Personal Consumption Expenditures index will be read by the Fed. The Consumer Price Index showed that inflation was at the fastest pace in decades in June.
Gas prices have dropped so much this month that inflation is likely to slow. Officials will be watching for signs of a broad and sustained slowdown in prices in the months ahead.
The White House is trying to help where it can, despite the fact that the Fed is the main response to inflation.
On a day when Democrats appeared to reach an agreement in the Senate on a bill meant to push down the price of prescription drugs and low-emission electricity, the central bank raised its rate.
After more than a year of rapid cost changes, central bankers are worried that Americans may start to expect inflation to last if it isn't lowered quickly.
Inflation could become a permanent feature of the economy if people and businesses begin to adjust their behavior in anticipation of rising prices.
After inflation became ingrained in the 1980s, the Fed raised interest rates to double-digit levels and caused back-to-back recessions that pushed the unemployment rate to over 10 percent. The Fed doesn't want another one.
Mr. Powell said that leaving the economy with inflation raises the costs.
There is a campaign against price increases being waged by other countries. Russia's war in Ukraine and the Pandemic have caused inflation to accelerate around the world. Many central banks are trying to slow down their own economies by raising interest rates.
As the Fed's moves begin to bite and as inflation itself weighs on family pocketbooks, growth in the US has already shown signs of weakness. High mortgage rates are scaring away would-be buyers and discouraging builders from starting new homes. Walmart said this week that inflation was putting pressure on consumers to buy less stuff. Many economists are predicting a mild recession after consumer sentiment tanked.
Mr. Powell said that he doesn't think America is in a downturn.
Mr. Powell does not believe that the U.S. economy is in a recession at the moment.
Unemployment is 3.6 percent, which is near the lowest level in 50 years. Employment compensation is rising fast but not fast enough to keep up with inflation.
Because the labor market is starting from a strong place, the Fed hopes that it will be able to slow the economy enough to cause inflation to fall without causing a wave of job losses. It could be difficult to achieve that outcome.
The goal is to bring inflation down and have a soft landing. We're trying to get that. I have said many times that it is going to be challenging, and that it has gotten more challenging recently.
The Fed chair thought that the central bank's response might be painful, but it was also punishing.
He said that low-income people were suffering as they went to the grocery store and learned that their paycheck didn't cover the food they normally buy. That is why we are committed to bringing down inflation.
The reporting was done by Joe and Jim.
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