Federal Reserve implements largest interest rate hike since 2000

The Federal Reserve raised interest rates again Wednesday in an effort to stamp down surging inflation. It increased rates by a half-percentage point, a move that will affect the pocketbooks of millions of Americans. Fed Chair Jerome Powell said more hikes are planned for this year. The Fed has changed course considerably while trying to avoid triggering a recession. Paul Solman reports.

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  • Geoff Bennett:

    The Federal Reserve raised interest rates again today in its effort to stamp down surging inflation. The hike was a half-percentage point, a move that will affect the pocketbooks of millions of Americans.

    Federal Reserve Chair Jay Powell said more hikes are planned for this summer and later in the year. The Fed has changed its course for steering the economy considerably.

    But, as economics correspondent Paul Solman reports, its trying to do so without triggering a recession.

  • Paul Solman:

    Today's rate hike, combined with the increase announced in March, means the Federal Reserve is moving or word with the biggest monetary tightening since the year 2000.

    It comes as the country endures the highest inflation surge since the 1970s, triggered by the supply chain snags you have kept seeing in footage like this, the government's pandemic spending ballooning the annual budget deficit, and now Russia's invasion of Ukraine.

    Fed Chair Jerome Powell spoke today about the move.

  • Jerome Powell, Federal Reserve Chairman:

    It is inflation people are feeling all over the country. And it is very important that they know that we know how painful it is and that we are working hard on fixing it.

  • Paul Solman:

    Now, Fed critics argue that years and years of new money creation, all that so-called quantitative easing, has set us up for the inflation problem and the Fed is doing too little, too late.

    But Chairman Powell reiterated, the Fed expects to hike rates several more times this year. Practically speaking of course, higher rates mean higher costs for borrowing, for a mortgage, say, or a car lease. And, typically, they hammer the stock market, with the S&P index down 13 percent so far this year.

    But the big question is the one the Fed always faces: Can it dampen an overheated, overinflated economy without overdoing it and causing a recession, steering its ever-elusive middle course to a soft landing?

  • Jerome Powell:

    I think we have a good chance to have a soft or softish landing, or outcome, if you will. Businesses are in good financial shape. The labor market is, as I mentioned, very, very strong.

    And so it doesn't seem to be anywhere close to a downturn. It's — therefore, the economy is strong and is well-positioned to handle tighter monetary policy.

  • Paul Solman:

    It is a historically tricky bit of navigation right now, with the world in turmoil, prices surging over 6 percent, while GDP actually sagged 0.4 percent in the first quarter of the year.

    On the other hand jobless claims are at their lowest level in decades. And, in March, employers posted a record 11.5 million job openings.

    Dana Peterson is executive vice president and chief economist at The Conference Board.

  • Dana Peterson, The Conference Board:

    I think this is an enormous — enormously difficult task for the Fed, because the Fed recognizes that not all the drivers are inflation — of inflation are things that they can directly control.

    So, all the sudden, we have faster inflation, again, caused by a confluence of events. And, certainly, meanwhile, you have a full labor market. And we haven't seen this sort of thing in quite some time, where most people are working.

  • Paul Solman:

    So, finally, the Fed has begun to sell off some of its debt portfolio, which has more than doubled since March 2020, and is up ninefold since the crash of 2008, when the Fed began buying bonds to rescue the economy.

    For his part today, President Biden touted the continued strength of the economy and even the reduction of the annual deficit.

  • President Joe Biden:

    We are on track to cut the federal deficit by another, another $1.5 trillion by the end of the fiscal year.

  • Paul Solman:

    That is to due in no small part to the end of some pandemic spending programs. But President Biden said his economic policies have led to growth and revenue that is shrinking the deficit as well.

  • President Joe Biden:

    Bring down the deficit is one way to ease inflationary pressures in an economy where the consequence of a war and gas prices and oil and food and — it all — it's just a different world right this moment because of Ukraine and Russia.

  • Paul Solman:

    And the president noted the government is paying down a bit of the national debt for the first time in six years.

    For the "PBS NewsHour," Paul Solman.

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