Fed hikes interest rates by 0.75 percentage point - CNBC

The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase, taking its benchmark rate to a ... SkipNavigationMarketsBusinessInvestingTechPoliticsCNBCTVWatchlistInvestingClubPROMenuKeyPointsTheFederalReserveonWednesdayenacteditssecondconsecutive0.75percentagepointinterestrateincrease,takingitsbenchmarkratetoarangeof2.25%-2.5%.ChairJeromePowellsaidtherewillbeapointwheretheFedstartstoslowhikestoassesstheirimpact."Weactuallythinkweneedaperiodofgrowthbelowpotentialinordertocreatesomeslack,"hesaid.VIDEO1:1001:10FederalReserveraisesratesby75basispointsasitrampsupfightagainstinflationPowerLunchTheFederalReserveonWednesdayenacteditssecondconsecutive0.75percentagepointinterestrateincreaseasitseekstotampdownrunawayinflationwithoutcreatingarecession.Intakingthebenchmarkovernightborrowingrateuptoarangeof2.25%-2.5%,themovesinJuneandJulyrepresentthemoststringentconsecutiveactionsincetheFedbeganusingtheovernightfundsrateastheprincipaltoolofmonetarypolicyintheearly1990s.Whilethefedfundsratemostdirectlyimpactswhatbankschargeeachotherforshort-termloans,itfeedsintoamultitudeofconsumerproductssuchasadjustablemortgages,autoloansandcreditcards.TheincreasetakesthefundsratetoitshighestlevelsinceDecember2018.MarketslargelyexpectedthemoveafterFedofficialstelegraphedtheincreaseinaseriesofstatementssincetheJunemeeting.StockshittheirhighsafterFedChairJeromePowellleftthedooropenaboutitsnextmoveattheSeptembermeeting,sayingitwoulddependonthedata.Centralbankershaveemphasizedtheimportanceofbringingdowninflationevenifitmeansslowingtheeconomy."Asthestanceofmonetarypolicytightensfurther,itlikelywillbecomeappropriatetoslowthepaceofincreaseswhileweassesshowourcumulativepolicyadjustmentsareaffectingtheeconomyandinflation,"Powellsaid.VIDEO3:3803:38Fed'sPowell:We'llbemakingratehikedecisionsonameeting-by-meetingbasisPowerLunchInitspost-meetingstatement,therate-settingFederalOpenMarketCommitteecautionedthat"recentindicatorsofspendingandproductionhavesoftened.""Nonetheless,jobgainshavebeenrobustinrecentmonths,andtheunemploymentratehasremainedlow,"thecommitteeadded,usinglanguagesimilartotheJunestatement.Officialsagaindescribedinflationas"elevated"andascribedthesituationtosupplychainissuesandhigherpricesforfoodandenergyalongwith"broaderpricepressures."Powellsaidhedoesnotthinktheeconomyisinrecession,thoughgrowthwasnegativeinthefirstquarterandwasexpectedtobebarelypositiveinthesecondquarter."Thinkaboutwhatarecessionis.It'sabroad-baseddeclineacrossmanyindustriesthat'ssustainedmorethanacoupleofmonths.Thisdoesn'tseemlikethatnow,"hesaid."TherealreasonisthelabormarkethasbeensuchastrongsignalofeconomicstrengththatitmakesyouquestiontheGDPdata."Theratehikewasapprovedunanimously.InJune,KansasCityFedPresidentEstherGeorgedissented,advocatingaslowercoursewithahalfpercentagepointincrease.ZoomInIconArrowspointingoutwardsTheincreasescomeinayearthatbeganwithratesfloatingaroundzerobutwhichhasseenacommonlycitedinflationmeasurerunat9.1%annually.TheFedaimsforinflationaround2%,thoughitadjustedthatgoalin2020toallowittorunabithotterintheinterestoffullandinclusiveemployment.PowellsaidtheFedis"stronglycommitted"toreducinginflationandsaidthatcouldcomewithacosttogeneraleconomicgrowthandthelabormarketinparticular."Wethinkitisnecessarytohavegrowthslowdown.Growthisgoingtobeslowingdownthisyearforacoupleofreasons,"hesaid.Theeconomy,headded,probablywillgrowbelowitslong-runtrendforaperiodoftime."Weactuallythinkweneedaperiodofgrowthbelowpotentialinordertocreatesomeslack."InJune,theunemploymentrateheldat3.6%,closetofullemployment.Butinflation,evenbytheFed'sstandardofcorepersonalconsumptionexpenditures,whichwasat4.7%inMay,iswellofftarget.VIDEO1:3201:32Therealquestionisareweonapathto2%inflation,saysJeromePowellPowerLunchTheeffortstobringdowninflationarenotwithoutrisks.TheU.S.economyisteeteringonthebrinkofarecessionasinflationslowsconsumerpurchasesanddentsbusinessactivity.First-quarterGDPdeclinedby1.6%annualized,andmarketswerebracingforareadingonthesecondquartertobereleasedThursdaythatcouldshowconsecutivedeclines,awidelyusedbarometerforarecession.TheDowJonesestimateforThursday'sreadingisforgrowthof0.3%.Alongwithrateincreases,theFedisreducingthesizeofassetholdingsonitsnearly$9trillionbalancesheet.BeginninginJune,theFedbeganallowingsomeoftheproceedsfrommaturingbondstorolloff.Thebalancesheethasdeclinedjust$16billionsincethebeginningoftheroll-off,thoughtheFedsetacapofupto$47.5billionthatpotentiallycouldhavebeenwounddown.Thecapwillrisethroughthesummer,eventuallyhitting$95billionamonthbySeptember.Theprocessisknowninmarketsas"quantitativetightening"andisanothermechanismtheFedusestoimpactfinancialconditions.Alongwiththeacceleratedbalancesheetrunoff,marketsexpecttheFedtoraiseratesatleastanotherhalfpercentagepointinSeptember.TradersWednesdayafternoonwereassigningabouta53%chancethecentralbankwouldgoevenfurther,withathirdstraight0.75percentagepoint,or75basispoints,increaseinSeptember,accordingtoCMEGroupdata.TheFOMCdoesnotmeetinAugust,butofficialswillgatherinJacksonHole,Wyoming,fortheFed'sannualretreat.MarketsexpecttheFedtostartcuttingratesbynextsummer,eventhoughcommitteeprojectionsreleasedinJuneshownocutsuntilatleast2024.MultipleofficialshavesaidtheyexpecttohikeaggressivelythroughSeptemberthenassesswhatimpactthemoveswerehavingoninflation.Despitetheincreases—totaling1.5percentagepointsbetweenMarchandJune—theJuneconsumerpriceindexreadingwasthehighestsinceNovember1981,withtherentindexatitshighestlevelsinceApril1986anddentalcarecostshittingarecordinadataseriesgoingbackto1995.Thecentralbankhasfacedcritics,bothforbeingtooslowtotightenwheninflationfirststartedtoacceleratein2021,andforpossiblygoingtoofarandcausingamoresevereeconomicdownturn.Sen.ElizabethWarren,D-Mass.,toldCNBConWednesdaythatsheworriedtheFedhikeswouldposeeconomicdangertothoseatthelowestendoftheeconomicspectrumbyraisingunemployment.TVWATCHLIVEWATCHINTHEAPPUPNEXT|ETListenTVWATCHLIVEWATCHINTHEAPPUPNEXT|ETListen