Federal Reserve increases interest rates in hope of curbing spending, lowering inflation

The Federal Reserve continued its aggressive approach to curb spending by raising interest rates by three-quarters of a percentage point on Wednesday.

To combat 9.1% inflation the Fed has continued to hike up interest rates in order to make borrowing more expensive and slow down spending.

The key rate, which affects many consumer and business loans, is at a range of 2.25% to 2.5%. This marks the highest level since 2018. The jump feels steeper after unprecedented pandemic lows in interest rates.

Future rate hikes may continue at this pace, Chairman Jerome Powell said at the July 27 press conference.

“These rate hikes have been large and they’ve come quickly and it’s likely that their full effect has not been felt by the economy,” he said. “There’s probably some additional tightening in the pipeline.”

The June Consumer Price Index was “disappointing” and higher than expected, Powell said. The next Federal Reserve meeting is set for September which means the Fed will have two more CPI readings to watch inflation and make future interest rate decisions based off that data.

Ultimately, the Fed’s goal is to bring inflation down to 2%.

Related: We’re getting used to inflation. That makes the Federal Reserve nervous.

The Fed’s decision comes during an onslaught of economic data pulling forecasters in different directions. While national unemployment remained low at 3.6% in June, a tight labor market has made it difficult for businesses to continue hiring.

Meanwhile Wall Street and other investors are expecting a back-to-back quarters of low GDP. Typically, consistently low growth is a top indicator of a recession. However, the Biden administration has been adamant about not calling a recession early, or at all.

During a White House press briefing on Monday the president said it in plain terms: “We’re not going to be in a recession.”

Powell echoed that sentiment saying he believed the nation is not currently in a recession. He pointed to a strong labor market with 2.7 million hired in the first part of the year.

The Biden administration has continued to level expectations and keep economic recovery — not recession — top of mind for consumers.

The nation’s overall morale is a key economic indicator on its own.

In June, the Fed hiked rates higher than it originally announced after receiving a pessimistic outlook from the University of Michigan’s Index of Consumer Sentiment.

Year-over-year confidence fell 40% in June, also marking a 14% decline from a month ago. Confidence was at the lowest recorded value in the last eight decades that the index has been measuring it.

That preliminary data grabbed the board’s attention ahead of the meeting, Powell said.

“It was quite eye catching,” he said after the June meeting.

The June consumer expectation survey found the public expects inflation to be at 3.3% in the next five to 10 years. In the short-term, the public expected inflation to be at 5.4% in the next year. Both results were higher than the month before.

July data from the consumer sentiment survey will be released this Friday.

More on MLive:

Prices surged 9.1% in June, the hottest inflation rate since 1981

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Is a recession coming? These are 4 signs Michigan economists say to watch

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