Outdoor Hospitality News

For owners, operators, team members, and anyone else interested in camping, glamping, or the RV industry.

Sharp Rate Hike Expected Next Month

The Federal Reserve must move faster than it has done in the past to curb the high inflation rate, Chair Jerome Powell said on April 21, warning that sharp interest rates will likely increase soon, starting at the next Fed policy meeting in May.

At a discussion panel organized by the International Monetary Fund during its spring meeting, Powell also suggested that “there’s something in the idea of front-loading” aggressive rate increases as the Fed is battling inflation that’s hit the highest level in four decades.

“So that does point in the direction of (a half-point rate increase) being on the table” for the Fed’s policy meeting May 3-4,” Powell said. 

In the past, the Fed has increased its short-term benchmark rate in smaller quarter-point increments. When the Fed raises its rates, it can lead to increased borrowing costs for individuals and businesses, including those looking to borrow money to purchase homes, cars, and other expensive goods.

Wall Street investors already expect the Fed to increase its key rate by half a point during its next three meetings, including those scheduled to take place in July and June. Powell’s remarks on Thursday affirmed the expectations. It would be the most rapid tightening since 1994 when the Fed increased its rate by 1.25 percentage points throughout three meetings.

Powell’s comments triggered stocks to drop their early gains and then sell off during the afternoon, and The S&P 500 fell 1.5% until the close of trading.

Last month, the Fed implemented the first rate increase over three years, bringing its target rate from 0.25% to 0.5%. Expectations for sharp rate hikes have increased rapidly, reflecting the constant rise in inflation. In December, Fed officials had planned only three quarter-point rate increases this year.

Fed officials had hoped inflation would fall by itself due to supply chain disruptions, and shortages of products like semiconductors became apparent; however, these “expectations have disappointed,” Powell said.

However, Christine Lagarde, president of the European Central Bank, who was present at the meeting, sounded a more cautious tone. Inflation in the 19 countries that use the euro reached 7.5% last month compared to the same time one year ago, which was the highest rate since records started in 1997.

Yet, Europe’s economy is under greater threat from Russia’s invasion of Ukraine, which has sent food and energy prices across the continent to a new high and had a more significant impact on the economic growth of Europe than the United States.

In their next session in June, Lagarde said the ECB would decide when to end the bond-buying program designed to lower the long-term interest rates. The Fed had a similar program in March.

The ECB has established the July-September quarter as the timeframe to end bond purchases. However, it hasn’t given a specific date.

Lagarde’s cautious because around half of the European inflation is triggered by rising energy costs. In general, policies on interest rates cannot address the effects of price disruptions, as per a report.

“Our economies are moving at a different pace,” Lagarde said, referring to Europe and the United States, where growth has been faster. “Our inflation is fed by different components.”

In his remarks, Powell said the Fed would like to “expeditiously” raise its benchmark rate to a neutral level, meaning it is a rate that does not hinder nor inhibit economic growth. Fed officials are now considering rates between 2.25% and 2.5% to be neutral. This is two percentage points higher than the current level.

The Fed could increase rates above the neutral mark, Powell said, to the point where it would slow economic growth “if that turns out to be appropriate” to stop excessive inflation.

On Wednesday, Charles Evans, president of the Federal Reserve Bank of Chicago,  said that the rate “will probably end up” over neutral by the time next year comes around.

However, Mary Daly, president of the San Francisco Federal Reserve, suggested that when the Fed raised rates to the point that it no longer stimulated or slowed growth, it should move prudently.

“If we slam the brakes on the economy by adjusting rates too quickly or too much, we risk…potentially tipping the economy into recession,” Daly said.

This article originally appeared on AP News.

Advertisement

Send this to a friend
Hi, you might find this article from Modern Campground interesting: Sharp Rate Hike Expected Next Month! This is the link: https://moderncampground.com/usa/sharp-rate-hike-expected-next-month/