US Fed Hikes Interest Rates by 0.25%

Facts

• On Wednesday, the US Federal Reserve (Fed) hiked interest rates a quarter point, putting the benchmark rate in the 5.25%-5.50% range. Chair Jerome Powell also suggested that more might be needed to lower inflation to the Fed's 2% target.¹
• The midpoint of the benchmark rate now stands at its highest since 2001, with Powell saying that it was "certainly possible" another hike could come at the Fed's September meeting, saying there is a "long way to go" before inflation returns to the central bank's target.²
• The recent hike was the 11th consecutive increase by the bank and their first after a one-month pause in rate movements in order to assess the economy. The Fed's inflation index stood at 3.8% in May, compared to a year prior, down from April's 4.3%.³
• A strong US economy and tight labor market are credited for keeping inflation above target levels, as the Fed tries to rein in inflation without inducing an economic downturn. Powell called the economic news "good to see" but warned that continued growth could lead to stronger deflationary measures.⁴
• On a potential rate hike at the September meeting, Powell said the Fed will be scrutinizing new inflation, employment, and consumer spending reports when making their decision, with some economists predicting a hike might be postponed until November.⁵
• Some economists believe that steady consumer spending and job growth could cause a resurgence in inflation, while others argue a hike too early could plunge the US into a recession. Powell says he believes it's still possible for inflation to be reduced without causing a deep recession.⁵

Sources: ¹Reuters, ²CNBC, ³CNN, ⁴FT, and ⁵Associated Press.

Narratives

• Pro-establishment narrative, as provided by Wall Street Journal. The Fed needs to stay the course on its inflation reduction regime, as every dire prediction of a Fed-induced collapse from the rate hikes has failed to come true. The economic outlook in the country is stabilizing, which gives the Fed more latitude to raise rates and help curb rapid inflation. Powell and the Fed are taking reasonable, responsible steps to fight inflation and should ignore the political pressure to hold back.
• Establishment-critical narrative, as provided by Washington Post. The Fed needs to hold off on any additional interest hikes for the time being, lest they risk prematurely ending the economic growth America has been experiencing. The data suggests that the economy's hot streak will cool off by the end of the year as pandemic-era savings and stimulus money is depleted by households, with reports suggesting personal savings have reached a record high. The Fed should let the succession of rate hikes take its course before making another hike.