Fed Announces Fifth Rate Hike Since March

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Facts

  • In its latest move to fight record high inflation, the Federal Reserve ("Fed") issued a 0.75% interest-rate hike on Wednesday, bringing its benchmark lending rate to between 3% and 3.25% — the highest seen since early 2008.
  • This was the fifth rate hike since March and the third consecutive three-quarter point rise. The central bank indicated that further increases should be expected.
  • According to new projections, rates are forecast to reach 4.4% by the end of the year before topping at 4.6% in 2023. This is up from the previous estimation of 3.4% and 3.8%, respectively.
  • The updated projections also predict that the unemployment rate will rise from today's 3.7% to 4.4% next year, and the US GDP was revised down to 0.2% from 1.7% in June — well below the estimated revision to 0.7%.
  • The news comes as inflation remained steady over the summer, with year-over-year prices rising slightly less than July's 8.5% to 8.3% in August, in large part due to falling gas prices. Prices for essential items have continued to climb, however, keeping inflation elevated.
  • The Fed also signaled that it expects the personal consumption expenditure price index — its preferred measure of inflation — to fall from July's 6.3% to 5.4% by the end of the year and eventually reach its target of 2% by 2025.

Sources: Wall Street Journal, Reuters, CNBC, and New York Post.

Narratives

  • Establishment-critical narrative, as provided by The Boston Globe. What the Fed is forgetting to factor into the inflation equation are supply chain issues, which are also contributing to rising prices. If supply bottlenecks continue, then these rate hikes could add to an already growing unemployment rate without actually bringing prices down — if that becomes reality, the US is looking at a devastating recession.
  • Pro-establishment narrative, as provided by Yahoo News. Though no one knows yet whether we're headed toward a recession, what we do know is that the economy must be cooled down in order to fight inflation. The Fed's only goal, for now, should be bringing prices down, which is what they've rightly committed to doing.