Inflation Is Transitory: Fed Looks To Raise Rates To Highest Since 2006

Remember when we were told 2 years ago that inflation was temporary? That it wouldn’t last? That the economy was just fine? Sure, we all understand that the politicians do not want to be really negative, but, the way everything was positioned was that it was all in your mind. Yet

Federal Reserve ‘between a rock and a hard place’ as interest rate decision looms

Federal Reserve officials will convene this week for one of the central bank’s most uncertain policy meetings in years.

Forced to balance the consequences of a banking crisis and inflation that remains well above target, the Fed is expected to raise interest rates by another 0.25% when it releases its latest policy decision at 2:00 p.m. ET Wednesday afternoon. This move would bring the Fed’s benchmark interest rate range to 4.75%-5%, the highest since 2006. Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET to explain the Fed’s decision.

“They’re in between a rock and a hard place,” said Wilmer Stith, bond portfolio manager for Wilmington Trust. “There’s a banking crisis and it’s really a very tenuous, uncomfortable position for the Fed to be in.”

During his semi-annual testimony before Congress in early March, Fed Chair Jerome Powell said strong economic data would likely push interest “higher than previously anticipated.” (snip)

Still, as of Tuesday morning, data from the CME Group showed investors placing an 85% chance on the Fed raising rates by 25 basis points on Wednesday.

“If they stop and reverse [rate hikes], that could cause markets to believe they’re not fighting inflation when inflation is still a problem, giving you higher mortgage rates and funding costs for corporations and just a tighter vice on the economy,” Stith said.

The problem here is that it is significantly reducing loans. Auto loans are way down, as people refuse to pay for the too-high used car prices (even if they have come down) at those higher interest rates. It’s so bad that a lot of dealers refuse to quote rates based on credit: you’ll just be told “let’s submit to the banks, let them tell us.” It’s cooling off small business loans and home loans. Home equity loans and personal loans.

In December, the Fed’s SEP suggested rates would peak in a range of 5%-5.25% during this rate hiking cycle. Powell’s testimony earlier this month suggested this outlook is what would need altering from the central bank.

Yeah, but what you end up with is loans that are much higher. When someone with an 810 credit score is seeing 5.99 as the best rate, when they would have had 3.99 two years ago, they hold off. As for the banks, if they are so mismanaged, let them fail. Where are all the regulators? Oh, right, they’re concerned with DEI and ‘climate change’. Regardless, raising the rates has not helped the economy, food, consumer goods, etc, are still way higher, and most are not coming down.

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3 Responses to “Inflation Is Transitory: Fed Looks To Raise Rates To Highest Since 2006”

  1. Professor Hale says:

    Hmm. Raising rates again. It’s as if the FED doesn’t really know what they are doing and are just making stuff up. One would think that they would know exactly how much interest rate keeps the economy humming along and how much change is needed to fine tune it from time to time.

    It is also worth noting that since the end of the Carter administration, the last time the USA had insanely high inflation, the FED has kept the rate near zero and inflation (the official rate anyway) has been around 2%. Perhaps the FED rate doesn’t rally have anything to do with curbing inflation. In olden times, a higher rate would encourage savings that could then be used to load out for investments. But today, the FED creates money literally out of thin air. So higher interest rates only serve to discourage lending and add the higher cost of money to the higher cost of gasoline, eggs, natural gas, food, and everything else people need to survive. Thus, instead of curbing inflation, higher money cost just add another element to the pain of inflation.

  2. Dana says:

    We bought a house in December of 2021, rate would have been 2.75%, but since we weren’t going to live in it — it’s rental property for my sister-in-law — the rate was 3.75%. It was just a couple of months later that we were very glad we bought when we did.

    • Professor Hale says:

      Two of my own family members bought in at just the right time between “rising rates” and “unaffordable”. People who don’t remember the Carter Administration don’t remember how hard it was to buy a house because people couldn’t afford the interest payments. Not many people have the means to buy a house without a mortgage.

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