4 Things To Know As The Fed Embarks On Major Offensive Against Inflation – InsuranceNewsNet

InsuranceNewsNet — Your Industry. One Source.™

Sign in
  • Subscribe
  • About
  • Advertise
  • Contact
Home Now reading Washington Wire
Topics
    • Life Insurance
    • Annuity News
    • Health/Employee Benefits
    • Property and Casualty
    • Advisor News
    • Washington Wire
    • Regulation News
    • Sponsored Content
    • Webinars
    • Monthly Focus
  • INN Exclusives
  • NewsWires
  • Magazine
  • Free Newsletters
Sign in or register to be an INNsider.
  • INN Exclusives
  • NewsWires
  • Magazine
  • Free Newsletters
  • Insider
  • About
  • Advertise
  • Editorial Staff
  • Contact
  • Newsletters

Get Social

  • Facebook
  • Twitter
  • LinkedIn
Newswires
Washington Wire RSS Get our newsletter
Order Prints
May 4, 2022 Washington Wire No comments
Share
Share
Tweet
Email

4 Things To Know As The Fed Embarks On Major Offensive Against Inflation

Federal Reserve Chairman Jerome Powell.
Minnesota Public Radio (MN)
The Federal Reserve is about to deliver its biggest punch yet in the fight against surging inflation.

Policymakers start a two-day meeting on Tuesday, and they are widely expected to raise interest rates by half a percentage point — the largest rate hike in more than two decades.

It's a clear sign of the urgency with which the Fed is approaching inflation, as prices continue to climb at the fastest pace in 40 years.

And the Fed won't be done there. The central bank is likely to keep pushing borrowing costs higher in the months to come.

Here's a quick look at the Fed's battle plan.

Why is the Fed raising interest rates?

The central bank is worried that prices are climbing too rapidly as people continue to spend money, from shopping for stuff to booking long-delayed vacations.

Demand is so strong it's outpacing what businesses can deliver, given that global supply chains are still fragile and employers are still struggling to find enough workers.

A key measure from the Commerce Department last week showed prices had surged 6.6 percent during the 12 months ending in March. That's more than three times the Fed's target rate for inflation and the sharpest increase in prices since 1982.

The Fed hopes to tamp down demand and ease inflation by making it more expensive to borrow money.

The Fed raised interest rates by a quarter of a percentage point in March, and it's expected to follow up this week with its first half-point rate hike since 2000.

How much will the Fed raise interest rates?

Potentially a lot more.

Experts say interest rates may have to climb significantly to reduce demand after the Fed kept borrowing costs at rock-bottom levels through much of the coronavirus pandemic.

On average, Fed policymakers said at their March meeting, rates would need to rise nearly 2 full percentage points this year, with additional rate increases next year.

Fed Chair Jerome Powell said the central bank will keep a close eye on how the economy performs and adjust the pace of rate hikes as needed.

But Powell thinks the Fed's usual practice of raising rates a quarter-point at a time may not be enough. He suggests the central bank needs to move aggressively upfront and then reassess as needed.

"It is appropriate in my view to be moving a little more quickly," Powell told an International Monetary Fund forum last month. "I also think there's something in the idea of front-end loading whatever accommodation one thinks is appropriate."

How will raising borrowing costs affect the economy?

Rising interest rates make it more expensive to take out a car loan or carry a balance on a credit card.

They also raise the cost of buying a home. Mortgage rates have already soared above 5 percent in anticipation of the Fed's actions, up from less than 3 percent a year ago. That adds about $370 to the monthly payment on a median-priced house.

The Fed's intent in raising rates is to discourage spending just enough to bring down inflation, without tipping the economy into recession — what economists call a "soft landing."

"That's our goal," Powell said. "I don't think you'll hear anyone at the Fed say that that's going to be straightforward or easy."

Some analysts are skeptical that the central bank can strike that delicate balance, having waited until inflation has climbed so high.

They warn the kind of aggressive action that's now needed to control prices is likely to trigger an economic downturn. Deutsche Bank, a German lender and major Wall Street firm, last week forecast a "major recession" next year.

Those concerns contributed to last week's sharp sell-off in the stock market.

What other steps is the Fed taking?

In addition to raising interest rates, the Fed is expected to announce plans to gradually reduce the collection of government bonds and mortgage-backed securities that it bought during the pandemic.

Buying those bonds helped pump money into the economy and keep borrowing costs low. Reducing the Fed's holdings should have the opposite effect — tamping down demand and helping to curb inflation.

"It's a secondary tool, but it does remove quite a bit of liquidity and accommodation from the system," said Kathy Bostjancic of Oxford Economics.

Copyright 2022 NPR. To see more, visit https://www.npr.org.

Older

CVS HEALTH CORP – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")

Newer

What Makes A Recession And Are We Heading For One?

Advisor News

  • Retirement Savers Remain Confident Despite Short-Term Woes
  • City of Memphis Helps Employees With Financial Wellness Programs
  • IRI CEO: ‘I Am Optimistic for Our Industry’s Future’
  • 2/3 Of Near-Retirees Failed Or Barely Passed A Basic Social Security Quiz
  • Crypto As National Currency? Maybe Not A Good Idea
More Advisor News

Annuity News

  • LibertyMark Freedom Fixed Indexed Annuities Launch
  • Nationwide Adds BNP Paribas Global H-Factor Index To FIA
  • Transamerica Launches Structured Index Advantage Annuity
  • Recommending FIAs: Start With The Client’s Objective
  • NC Man Wins First $5 Million Prize In Scratch-Off Game
Sponsor
More Annuity News

Health/Employee Benefits News

  • EBRI Studies Expanding Pre-Deductible Coverage For Chronic Conditions
  • Most Consumers Choose To Pay Higher LTCi Premiums
  • CMS Creates More User-Friendly Medicare Website
  • Integrity Marketing Group Buys Ritter Insurance Marketing
  • Maine Powerless In Big Fight Between Its Largest Insurer And Hospital
More Health/Employee Benefits News

Life Insurance

  • The 5 Secrets To Retaining Financial Sales Professionals
  • Life Insurance Activity Continues Dip In April But Still Stronger Than 2021, MIB Reports
  • Transamerica Adds Execs To Annuity And Life Insurance Team
  • Northwestern Mutual Invests $5M In Black-Led Financial Institutions
  • Protective Life Closes On AUL Acquisition
More Life Insurance

- Presented By -

How to Write For InsuranceNewsNet

Find out how you can submit content for publishing on our website.
View Guidelines

FEATURED OFFERS

Get Linked INN to your industry Connect with INN on LinkedIn to be first on all the news and insights that matter to your industry.

Press ReleasesAll press releases

  • OneAmerica Commits $1 Million Toward Financial Literacy
  • Transamerica Structured Index Advantage Annuity Offers Investors More Certainty with Upside Growth and Downside Protection
  • Senior Market Sales Creates First-of-Its-Kind Lead Acquisition Platform
  • Growing financial services firm Kuvare opens Des Moines office in East Village, continuing expansion in Iowa
  • BetterLife Selects iPipeline® to Digitally Transform Its Business & Better Serve Future Generations
Add your Press Release >

Topics

  • Life Insurance
  • Annuity News
  • Health/Employee Benefits
  • Property and Casualty
  • Advisor News
  • Washington Wire
  • Regulation News
  • Sponsored Content
  • Webinars
  • Monthly Focus

Top Sections

  • Life Insurance
  • Annuity News
  • Health/Employee Benefits News
  • Property and Casualty News
  • AdvisorNews
  • Washington Wire
  • Insurance Webinars

Our Company

  • About
  • Editorial Staff
  • Magazine
  • Write for INN
  • Advertise
  • Contact

Sign up for our FREE e-Newsletter!

Get breaking news, exclusive stories, and money- making insights straight into your inbox.

select Newsletter Options
Facebook Linkedin Twitter
© 2022 InsuranceNewsNet.com, Inc. All rights reserved.
  • Terms & Conditions
  • Privacy Policy
  • Sitemap
  • AdvisorNews

Sign in with your INNsider Account

Not registered? Become an INNsider.