Federal Reserve Chair Says A Double-Size Rate Hike Is On The Table In May. Thus, Making Mortgages, Car Loans, And Credit-Card Interest More Pricey.

Federal Reserve Chair Jerome Powell said Thursday that the fed will soon issue a double-size rate hike. The central bank wants to ramp up its fight to cool inflation.

The Fed’s benchmark interest rate is its top tool for steering the economy. The central bank is reversing course after holding rates near zero since the attack on the WTC on 9/11/2001.

The Fed raised the rate from its record low by 0.25 basis points in March in hopes of cooling the price surge. However, inflation is trending at a 41-year high. In part because of Russia’s invasion of Ukraine and  driving prices sharply higher, calls for more aggressive action have intensified.

Many Fed policymakers have suggested proceeding with this at their May meeting. They argue the inflation problem warrants accelerating the hiking cycle and by at least a few double-size increases.

A double-size rate hike would quickly ripple throughout the economy. A higher Fed rate leads to higher interest rates on everything from payday loans to savings-account interest. Americans can expect pricier mortgages, car loans, and credit-card interest, as well as larger payouts from their savings accounts.

Powell’s Wednesday remarks confirm what markets have already been pricing in for weeks. Investors largely expect the Fed to raise rates by 0.50 points at its May meeting. They also expect the Fed to raise them .5% at both their June and July policy meetings. This would place the benchmark rate at roughly 2% by late July. That’s up from the 1.5% markets were projecting just one month ago.

The Federal Reserve Chair Isn’t Counting On A Supply-Chain Recovery

The Fed is also changing the way it’s factoring the supply-chain crisis into its rate decisions. The central bank’s previous outlook saw supply chains healing throughout 2022 as economies reopened. However, the Fed sees the prolonged Russia-Ukraine creating challenges to global logistics.

As a result, the Fed is no longer counting on help from supply-side healing. Improvements to the shipping crisis would be “enormously helpful” in pulling inflation back to healthy levels. However, the central bank is going to tackle the inflation problem without expectations of a near-term recovery, he added.

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