US Fed Boosts Interest Rates by Another 0.5%

Facts

• In a slowdown after four consecutive 0.75% interest rate increases, the US Federal Reserve (Fed) announced a 0.5% rate hike on Wednesday in its continuing battle against inflation. The latest move brings the benchmark rate to a 15-year high range of 4.25% to 4.5%.
• Central bank officials are now projecting rates to hit 5.1% next year, up from previous predictions of 4.6% when they last issued forecasts in September. They're also projecting inflation to remain high for longer than expected, with consumer prices anticipated to jump 3.1% next year and 2.5% in 2024.
• The consensus among officials is that after reaching the peak rate of 5.1% next year, they'll wait for its impact to spread through the economy. After that, the Fed is expected to make a full percentage point cut in 2024, another in 2025, and finally settle at a neutral point of 2.5% after that.
• The move came shortly after the release of November's jobs report, which showed a lower-than-expected 7.1% year-over-year spike in the consumer price index (CPI), including a 0.5% jump in food costs and 0.6% in shelter prices. However, energy prices saw a 1.6% dip.
• As rate hikes have impacted the entire economy, including credit card rates, auto loans, and savings accounts, experts warn home prices could fall by as much as 20% from their recent peaks.
• As the Fed continues to battle the still-growing job market and rising wages due to inflation, the personal savings rate fell to a nearly two-decade low of 2.3% last month, suggesting cash stashed away during the pandemic hasn't been able to compete with the rise in prices.

Sources: Wall Street Journal, New York Times, CNBC, Daily Wire, New York Post, and ABC.

Narratives

• Establishment-critical narrative, as provided by Market Watch. In an attempt to restore its credibility and the public's trust, the Fed has foolishly decided to continue with its monetary tightening despite compelling evidence from November's job report that the central bank has successfully eased the pace of inflation — a fact the media has unsurprisingly downplayed. To compensate for its initially slow response, the Fed is now raising rates too far, which risks pushing the US economy over the ever-nearing recession finish line.
• Pro-establishment narrative, as provided by The Wall Street Journal. Though energy prices were down in the latest CPI report, food and services costs have remained on the rise, which is why the Fed is correct in its latest rate hike decision. As wages increase in a market still waiting to fill 10M jobs, hopes for a rate decrease any time soon should be quelled as employers are still catching up with current inflation. While painful, fighting inflation now will allow the US to return to normal sooner.
• Cynical narrative, as provided by CNN. Though the Fed has done a good job so far, there's a potentially dreadful scenario due to US policy's effects on the global economy. With Europe likely to face a harsher economic downturn, international players may call on the US central bank to bring rates down to help their economies breathe, which would let domestic inflation loose again and ruin all the progress the US has made. Chairman Powell must be cognizant of these possibilities.

Predictions