Nov. 2 (UPI) — The Federal Reserve decided Wednesday afternoon to raise interest rates by another 0.75 percentage point, or 75 basis points. The Fed cited continuing upward pressure on inflation as the reason.
The Fed said in a statement, “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
As a result, it “anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”
While inflation is persistent, the Fed said, recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low.
The Fed statement also said Russia’s war in Ukraine is “causing tremendous human and economic hardship” and the war, together with related events, is creating additional upward pressure on inflation.
“Interest rates have risen at a whiplash-inducing speed, and we’re not done yet,” said Greg McBride, chief financial analyst at Bankrate. “It’s going to take some time for inflation to come down from these lofty levels, even once we do start to see some improvement.”
Wednesday’s hike is the fourth consecutive 75-basis-point hike this year and would bring the federal funds rate to the range of 3.74% to 4%.
The Fed said it will continue to closely monitor economic conditions and is “strongly committed to returning inflation to 2%.
The last interest rate hike by the Fed was in September. Powell said then that the central bank was resolved to restore price stability, which is “the bedrock of our economy.”
A Bureau of Economic Analysis report released last week showed inflation continuing at a high rate in September, with the personal consumption expenditures index rising 6.2% from a year ago.
“The market is very fixated on the fact there’s going to be 75 [basis points] in November, 50 in December, 25 on Feb. 1 and then probably another 25 in March,” said Julian Emanuel, head of equity, derivatives and quantitative strategy at Evercore ISI. “So in reality, the market already thinks this is happening, and from my point of view, there’s no way the outcome of his press conference is going to be more dovish than that.”
U.S. stocks opened lower Wednesday in anticipation of the Fed interest rate hike announcement.
Newly constructed home sales plunged by 10.9% in September in response to the rising mortgage rates and were down 17.6% compared to a year ago.