The Federal Reserve has raised its benchmark interest rate for a second straight time in its most aggressive drive in three decades to tame high inflation. Story:
The Fed’s move will raise its key rate, which affects many consumer and business loans, to a range of 2.25% to 2.5%, its highest level since 2018.
The Fed’s moves to sharply tighten credit have torpedoed the housing market, which is especially sensitive to interest rate changes. The average rate on a 30-year fixed mortgage has roughly doubled in the past year, to 5.5%, and home sales have tumbled. In a statement the Fed issued after its latest policy meeting ended, it acknowledged that while “indicators of spending and production have softened,” “job gains have been robust in recent months, and the unemployment rate has remained low.” The Fed typically assigns high importance to the pace of hiring and pay growth because when more people earn paychecks, the resulting spending can fuel inflation.
But economists say that wouldn’t necessarily mean a recession had started. During those same six months when the overall economy might have contracted, employers added 2.7 million jobs — more than in most entire years before the pandemic. Wages are also rising at a healthy pace, with many employers still struggling to attract and retain enough workers.
“How much recession risk are you willing to bear to get back to 2%, quickly, versus over the course of several years?” asked Nathan Sheets, a former Fed economist who is global chief economist at Citi. “Those are the kinds of issues they’re going to have to wrestle with.”
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