Fix It Jesus: Another big rate hike to fight inflation amid recession worries
By CHRISTOPHER RUGABER/ The Associated Press
Photo: Jose Luis Pelaez Inc/Getty (Illustration & Animation: EEW Magazine)
With inflation at a four-decade high, the Federal Reserve is under pressure to continue raising interest rates aggressively to a range of 2.25% to 2.5%.
It will be the Fed’s fourth rate hike since March. Since then, the central bank has tightened credit ever more vigorously.
By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. In turn, consumers and businesses will likely borrow and spend less, cooling the economy and slowing inflation. The Fed’s hikes have already led to a doubling of the average rate on a 30-year fixed mortgage in the past year, to 5.5%, and home sales have tumbled.
The central bank is betting it can slow growth just enough to tame inflation yet not so much as to trigger a recession — a risk that many analysts fear may end badly.
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Some analysts point to signs that the economy is slowing and might even have shrunk in the first half of the year. As a result, they worry that the Fed could end up tightening credit too much, too fast, and end up causing a downturn that would lead to layoffs and rising unemployment.
In the meantime, the surge in inflation and fear of a recession have eroded consumer confidence and stirred public anxiety about the economy. Meanwhile, Americans’ discontent has diminished President Joe Biden’s public approval ratings.
The definition of recession that is most widely accepted is the one determined by the National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” The committee assesses a range of factors before publicly declaring the death of an economic expansion and the birth of a recession — and often does so well after the fact.
