On Wednesday, this week, the Federal Reserve Bank issued the largest interest rate hike in at least the last twenty years in an effort to combat skyrocketing inflation. As part of its anti-inflation campaign, the central bank increased its benchmark by one-half percentage point; and this comes after a quarter-point increase back in March. More importantly, this move signifies quite a dramatic divergence from the easy-money policy the Fed had been pursuing during the pandemic.
In a recent statement, Federal Reserve Jerome Powell commented that inflation is, in fact, “much too high” and he attempts to communicate that the agency is sympathetic to the economic strain it is putting on the average consumer. Thus, he goes on to say, “We’re moving expeditiously to bring it back down.”
Specifically, the chairman noted that they would be willing to actively consider another couple of half-point rate increases spread out across the next two meetings, which are in June and July. In that regard, too, Powell assures that the Bank is not presently considering any rate hikes bigger than one-half points.
Apparently, that sense of caution has pleased investors; or, at least, has provided some reprieve. And on that note, the Dow Jones Industrial Average shot up more than 900 points. In addition both the Nasdaq Composite and the Standard & Poors 500 saw bumps of around 3 percent.
Expressed investor confidence is a pretty good sign that things may start improving, at least in market terms. After all, consumer prices for March were more than 6.5 percent higher than the same period one year ago. This indicates the biggest such jump in roughly four decades. Conclusively—and not including the more volatile measure(s) of food and energy costs—prices were up 5.2 percent, overall.
But higher interest rates will, at least at first, hit consumers harder. This action from the Fed will most certainly increase costs for new credit customers and will also see an uptick in interest payments that many American households will face on their home equity lines of credit. And this is not even taking into account how strained the average consumer is from higher food and gas prices.