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NY Post
New York Post
3 May 2023


NextImg:Fed hikes rates quarter of a percentage point as inflation persists

The Federal Reserve hiked interest rates by another quarter percentage point on Wednesday as the central bank continues efforts to tame inflation — and hopes to avoiding sparking a recession.

Investors on Wall Street are hopeful that Wednesday’s 25-basis point rate hike, which brings the benchmark funds rate from 5% to 5.25%, marks the end of the Fed’s tightening of its monetary policy in light of the instability that has rocked the banking sector.

While inflation has slowed somewhat in recent months, it has not abated at the level that the central bank would like.

The Fed’s decision comes as higher interest rates have eaten into the country’s economic growth.

The US economy grew by an annual pace of just 1.1% from January through March.

Analysts blame the high interest rates that have cooled the housing market while forcing businesses to cut inventory as consumer pare back spending.

Core personal consumption expenditure prices, which measure the changes in the price of goods that exclude food and energy, rose 4.9% in the first three months of the year, higher than the 4.7% consensus and up from the fourth quarter figure.

The Federal Reserve announced another hike of interest rates on Wednesday.
Getty Images

Despite the lower-than-expected production, consumer spending, which accounts for about 70% of US economic activity, remained resilient, growing at a 3.7% annual pace, the fastest quarterly pace in nearly two years, according to recent figures from the Commerce Department.

The slowdown reflects the impact of the Federal Reserve’s aggressive drive to tame inflation, with nine interest rate hikes over the past year.

The surge in borrowing costs is expected to send the economy into a recession sometime this year.

Though inflation has steadily eased from the four-decade high it reached last year, it remains far above the Fed’s 2% target.

The housing market, which is especially vulnerable to higher loan rates, has been battered.

And many banks have tightened their lending standards since the failure of three major US banks, making it even harder to borrow to buy a house or a car or to expand a business.

Regulators on Monday announced that First Republic Bank had been seized and then sold to JPMorgan Chase & Co.