Fed Raises Interest Rates Again

(RepublicanJournal.org) – Compared to most other major economies, the US is doing quite well at controlling price increases. Inflation is now almost down to the Federal Reserve’s long-term target. However, the central bank has just hit the economy with yet another interest rate hike — and many Americans are wondering why the Fed is punishing us to fix a problem that looks like it’s already been solved.

On July 26, Federal Reserve chairman Jerome Powell announced yet another rise in interest rates, bringing the benchmark rate to 5.3%. This is the 11th increase since the beginning of 2022 when the base rate was just 0.25%. Powell says he wants to see “cooling in labor market conditions” — in other words, wage rises slowing down. Interest rates are a common economic tool for doing that, but pushing up the cost of borrowing can be painful for ordinary Americans.

The Fed’s plan seems to be working — in fact, it seems to have already achieved its goal. The bank has a 2% target for inflation, and the annual rate is now just 1% above that. Wages are around where pre-pandemic predictions said they would be. It’s looking like inflation was a short-term problem caused by massive government handouts during the pandemic and not an ongoing issue baked into our economy. So, with the situation apparently under control, why is Powell boosting interest rates yet again and refusing to rule out even more increases in the fall?

Some people are starting to think the Fed is going too far. New York retailer Jacob Abadi agreed that Powell and his board are using all the anti-inflationary tools they have but argued, “I don’t know if it’s necessary because inflation has slowed down… I don’t see the point of it.” He thinks the difficulties for home buyers, who are facing much more expensive mortgages, are a bigger issue than inflation at this point.

Financial analyst David Dunn said current interest rates are what people in the 80s and early 90s were used to — in fact, they’re the highest they’ve been for 22 years — but the rapid increase over the last 17 months is punishing. Others are complaining that the spiraling cost of car loans is causing them stress. Inflation is a bad thing — after the last couple of years, nobody’s going to disagree with that — but the Fed’s response might be even worse.

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