In the face of continued inflationary pressure and a labor market walking a tight wire the Federal Open Market Committee has announced a hike on interest rates again, another 0.75 for a historic third consecutive meeting.
Inflation has slowed with the previous Fed rate hikes, at a rate of 0.1 in August coming off the mid-year high of 9.1 percent to a still much too high 8.3 percent. Meanwhile, the labor market has held its own, but unemployment ticked up from 3.5 to 3.7 percent as many job seekers re-entered the market.
Prices across the board are up, from energy and food to higher ticket items like cars and homes. The FOMC hopes the steady rate hikes that make obtaining financing a bit more expensive will help tame the market and create the least pain possible toward the goal of 2 percent inflation, and steady growth in labor and investment. If rates move too quickly, or too high, it could result in recession.
The Fed already this year had been more aggressive in raising rates than any time since the 1980s. The 2022 rate hikes — in March, June, and July, and now September — accounted for a 2.5 boost that now has rates hovering between 2 and 3.25. Most analysts believe the Fed will continue at some pace to raise rates to 4 or 4.5 percent by sometime next year.
But how much is too much?
“The deceleration in housing prices that we’re seeing should help bring sort of prices more closely in line with rents and other housing market fundamentals. For the longer term, what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level, at a reasonable pace, and that people can afford houses again… so we probably in the housing market have to go through a correction to get back to that place.”Fed Chairman Jerome Powell
In addition to the rate hike, the Committee stated it will continue to reduce holdings of Treasury securities and agency debt, and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that was issued in May.
“In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook,” the FOMC said in a released statement. “The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”