As Powell said, the Fed doesn't control oil prices, and if they keep soaring it may require sucking a lot more demand out of the economy to make a dent in inflation. One is that it's still not raising rates enough. When it became dug in at double-digit rates in the 1970s, the Fed had to raise interest rates to nearly 20% to rein it in. Because the worse inflation gets, the harder it is to bring down. This will mean pain for business borrowers, including farmers and ranchers, but the pain would likely be worse in the long run if the Fed had decided not to attack inflation full-bore now. And the Fed will very likely be raising rates further in 2023. Having decided to raise rates faster than previously planned, Fed officials now expect the central bank's benchmark rate, which began the year near zero, to reach at least 3% by year end, with half the officials expecting 3.375%. After a brief rally the afternoon of the rate hike, stocks fell sharply the next day, June 16.
The stock market seems convinced that's what the Fed is doing. ( …) With both inflation and public expectations worsening rather than improving, there was a strong argument for the Fed to make fighting inflation its priority. In the days before the 0.75 point hike, there had been reports that in May, the consumer price inflation rate had risen to 8.6% and consumer expectations for the inflation rate in the year ahead had risen to 6.6%. There's a much bigger chance now that it'll depend on factors that we don't control," like "fluctuations and spikes in commodity prices." However, Powell admitted to reporters, "It's not going to be easy. The Fed still hopes to avoid a recession. It was hoping that inflation was starting to edge down and that the public was not developing expectations of continued rapid price increases. In rejecting three-quarter-point hikes a few weeks earlier, the Fed had been trying to fulfill both its mandates simultaneously, combating inflation while avoiding a recession. We have to restore price stability." ( …) At the press conference following the Fed decision, chair Jerome Powell said: "The worst mistake we could make would be to fail" to bring down inflation. That it opted to do so now is further evidence that even though it doesn't admit to a change in emphasis, fighting inflation has become the Fed's priority. The Fed doesn't like to be in the position of misleading the market. The latest increase was not only the largest since 1994, but it came after the Fed had guided markets to believe it would be raising rates by only half a point. That changed on June 15, when the Fed raised its benchmark interest rates by 0.75 percentage points and indicated the next hike might also be 0.75 points. For the last few years, maximizing employment had been the Fed's priority. It usually can't succeed at both simultaneously. The Fed's dual mandate from Congress requires it to aim for both maximum employment and minimum inflation. It could also mean less chance of ultra-high rates further down the road. This means higher-than-expected interest rates in the short term. The Federal Reserve has decided to throw everything it has into fighting inflation, even at the risk of causing a recession. The Federal Reserve Board's increasing aggressiveness in fighting inflation is evident in the accelerating size of its interest rate hikes - a 25-basis-point increase in the benchmark federal funds rate in March, a 50-point increase in May and a 75-point increase in June.
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