- The Washington Times
Wednesday, November 2, 2022

The Federal Reserve raised a key interest rate by another three-quarters of a percentage point Wednesday. The aim is to fight inflation, reinforcing the most aggressive pace of rate hikes since the 1980s. The move also increases the risk of recession and adds to voters’ economic concerns just before next week’s midterm elections.

Fed Chairman Jerome H. Powell gave a bleak assessment of the central bank’s job ahead, saying it likely will need to raise rates higher than initially hoped because inflation isn’t coming down fast enough.

He also suggested that the likelihood of a recession is growing.

“The inflation picture has become more and more challenging over the course of this year,” Mr. Powell said at a press conference in Washington. “It is very premature to be thinking about pausing. We have a ways to go.”

He said curbing inflation “is likely to require a sustained period of below-trend growth and some softening of labor market conditions.”

Wall Street, where stocks had been trading slightly higher before Mr. Powell’s remarks, turned sharply lower after he gave his outlook.

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The Dow Jones Industrial Average fell 505 points on the day, down 1.5% to close at 32,146 points. The tech-heavy Nasdaq lost 3.3%, while the S&P 500 closed down 2.5%.

In announcing its sixth rate hike this year, the Fed’s Open Market Committee increased its benchmark rate to the 3.75% to 4% target range. Having started near zero in March, the Fed’s series of rate hikes is the highest in about four decades.

Rising prices are the most pressing concern cited by voters in polls and have been a central theme of Republicans’ criticism of the Biden administration ahead of the Nov. 8 elections. Inflation hit a 41-year high of 9.1% in June, falling slightly to 8.2% in September, while gasoline prices hit a record high over the summer.

A Quinnipiac University poll released Wednesday showed that 36% of Americans cited inflation as their top concern, up 9 percentage points from the same poll in August.

“What issue concerns Americans most? It’s not even close. Inflation: the price of putting food on the table, paying for gas at the pump and the diminishing value of the money they earn runs away with the ranking,” said Quinnipiac University pollster Tim Malloy.

More than half of Americans (54%) said the price of gas and consumer goods is the economic issue that worries them most, while 25% cited the cost of housing or rent, 12% said the stock market, and 5% cited their job situation.

The interest-rate hikes are raising the costs of credit card debt, auto loans and other consumer loans as well as causing mortgage rates to rise to their highest point in two decades.

The housing market has been affected most. Mortgage rates have eclipsed 7% for the first time since 2002 and mortgage applications have fallen to their lowest level in 25 years.

President Biden and Democrats have been hard-pressed to answer effectively Republicans’ criticism about inflation. Mr. Biden has focused on gas prices easing slightly from record highs, but he also has tried to divert the conversation by accusing the GOP of tactics to undermine democracy.

Conservatives said Democrats’ big spending in Washington is to blame.

“The Fed’s decision to raise rates is a black eye on the Biden administration,” said Alfredo Ortiz, president and CEO of the Job Creators Network. “The administration’s record spending spree is fueling the inflation that the Fed is desperately seeking to contain. Small business owners and aspiring homeowners will now experience higher borrowing costs as the Fed acts to mitigate the administration’s irresponsible far-left policies.”

The Fed said Russia’s war in Ukraine “and related events are creating additional upward pressure on inflation and are weighing on global economic activity.” The committee said more rate hikes will be needed to help return inflation eventually to 2%.

Mr. Powell said the job market remains strong, reassuring that the central bank can raise rates higher without hurting the economy too much.

“We understand that our actions affect communities, families and businesses across the country,” he said.

Previously, Mr. Powell had indicated that the Fed’s benchmark rate likely would rise to about 4.6% before the central bank eased off. But his comments on Wednesday suggested the Fed probably will go higher than 5% on its benchmark rate.

• Dave Boyer can be reached at dboyer@washingtontimes.com.

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