The Biggest Rate Hike Since 1994

Fed Targets Inflation With Biggest Rate Hike Since 1994

The Federal Reserve on Wednesday raised its benchmark interest rate by three-quarters of a percentage point, lifting the target range to between 1.5% and 1.75%. The widely expected rate hike, the largest since 1994, comes as the central bank ramps up its campaign to combat the persistent inflationary surge that threatens to overwhelm the U.S. economy.

Members of the Federal Open Market Committee indicated that they expect to continue to aggressively raise rates, contingent on new data, with a target of 3.4% by the end of the year — a 1.5-point increase from the projection released in March. Fed Chairman Jerome Powell told reporters that another three-quarter-point increase would be on the table for the next FOMC meeting in July. Fed officials expect the key federal funds rate to peak at between 3.5% and 4% in 2023, with a median expectation of 3.8%.

Overall, Powell made it clear that he still expects to push the inflation rate back down to its target range near 2% in the long run, even though conditions have been worse than expected. “We thought that strong action was warranted at this meeting and we delivered on that,” Powell said. “It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all. … The current picture is plain to see: The labor market is extremely tight and inflation is much too high.”

Fed officials now expect inflation to come in at 5.2% for the full year in 2022, before dropping to 2.6% in 2023 and 2.3% in 2024.

Counting on a soft landing: While Fed officials slashed their projections for economic growth — GDP is now estimated to increase by 1.7% in 2022, down from the 2.8% estimate released in March — they also said they still expect to avoid a recession.

Still, the path now looks quite a bit bumpier. Unemployment is projected to climb steadily, increasing to 3.7% by the end of 2022, hitting 3.9% in 2023 and 4.1% in 2024. Powell told reporters that even with those increases, the labor market would still be in relatively good shape.

“If you were to get inflation on its way down to 2%, and unemployment up to 4.1%, that’s still a historically low level. … 3.6% is historically low in the last century,” Powell said. “So a 4.1% unemployment rate, with inflation well on its way to 2%, I think that would be a successful outcome.”

At the same time, however, there are now more factors in play, complicating the Fed’s task. “I think events of the last few months have raised the degree of difficulty, created great challenges,” Powell said. “And there’s a much bigger chance now that it will depend on factors that we don’t control.”

Critics react: In a roundup of comments at Bloomberg News, Tim Holland, chief investment officer at Orion Advisor Solutions, said the Fed has affirmed its “inflation-fighting credentials” while reducing expectations for the economy in a way that is “quite credible and appropriate.” Still, Holland said he is still concerned that the Fed will “go too far, too fast, putting the economy at risk of recession.”

Worries about recession are fairly common among private private-sector analysts. Economists at Wells Fargo sent a note after the announcement saying that, in their view, a recession in 2023 “now seems more likely than not.”

Joseph Brusuelas, chief economist at the consulting firm RSM, said in a note that the Fed’s determination to move aggressively suggests there could be trouble in early 2023: “the downward revision of the growth path, increase in unemployment and inflation remaining elevated imply that the probability of a recession is rising, and we think the first real possibility of the economy falling off a cliff resides in the first quarter of next year.”

Biden Announces Another $1 Billion in Military Aid for Ukraine

President Biden said Wednesday that he has authorized additional military aid for Ukraine.

“This morning, I spoke with President Zelenskyy to discuss Russia’s brutal and ongoing war against Ukraine,” Biden said in a statement released by the White House. “I informed President Zelenskyy that the United States is providing another $1 billion in security assistance for Ukraine, including additional artillery and coastal defense weapons, as well as ammunition for the artillery and advanced rocket systems that the Ukrainians need to support their defensive operations in the Donbas.”

For the first time, the aid package will include Harpoon anti-ship missiles, which can be used against both sea- and land-based targets. In addition, the package will reportedly include $320 million for communications equipment, $55 million for night-vision equipment and $160 million for training.

‘Not Acceptable’: Biden Slams Oil Companies for High Gas Prices, Profits

President Biden on Wednesday blasted seven major oil companies, criticizing them for limiting refining capacity and posting “historically high” profit margins that are worsening the financial pain for Americans.

In a letter sent to the top executives of oil companies BP America, Chevron, ExxonMobil, Marathon, Phillips 66, Shell USA and Valero, Biden said there is now “an unprecedented disconnect between the price of oil and the price of gas and that refiners’ margins are now at all-time highs. He asked the companies to explain why refinery capacity that had been reduced during the pandemic hasn’t been restored.

“[A] t a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable,” Biden wrote. “There is no question that Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing. But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain.”

In response to the letter, Mike Sommers, president and CEO of the American Petroleum Institute, said that the administration shares blame for high energy prices. ““While we appreciate the opportunity to open increased dialogue with the White House, the administration’s misguided policy agenda shifting away from domestic oil and natural gas has compounded inflationary pressures and added headwinds to companies’ daily efforts to meet growing energy needs while reducing emissions,” Sommers said in a statement.

What’s next: Biden said Energy Secretary Jennifer Granholm will convene an "emergency meeting” to try to find near-term ways to address what he called a “crisis.”

Sen. Ron Wyden (D-OR), who chairs the Senate Finance Committee, reportedly is developing a plan to impose a new 21% federal surtax on oil companies that post a profit margin of more than 10%. “The proposal I’m developing would help reverse perverse incentives to price gouge, by doubling the corporate tax rate on companies’ excess profits, eliminating egregious buybacks and reducing accounting tricks,” Wyden told Bloomberg News. “By contrast, companies that provide relief to consumers by either reducing prices or investing in new supply would not be affected.”

The bottom line: Biden has been working to demonstrate that he is doing everything he can to bring down gas prices that now average more than $5 a gallon nationally — and redirect public anger where possible. “It’s part of the combative narrative that it’s the refiner’s fault, the oil companies’ fault,” Tom Kloza, global head of energy analysis at Oil Price Information Service, told The New York Times of Biden’s letter. “The narrative from the Republicans is it’s all Biden’s fault, and that’s not true. But it’s also not true that refiners have conspired” to jack up prices, he said.

1.9 million and 609,360: The estimated numbers of new cancer cases and deaths in 2022, according to the American Cancer Society. Cancer death rates dropped 27% between 2001 and 2020, according to the Centers for Disease Control and Prevention, but cancer remains the second-leading cause of death in the United States behind heart disease.

• Fed Hikes 75 Basis Points, Powell Says 75 or 50 Likely in July – Bloomberg
• Failure ‘Not an Option’: Fed Vows All-Out Fight on Inflation – Politico
• US Retail Sales Post First Drop in Five Months as Auto Purchases Plunge – Bloomberg
• House Armed Services Democrats to Propose $802 Billion Defense Policy Bill – The Hill
• Biden Ally Floats 21% Surtax on Oil Profits to Blunt Inflation – Bloomberg
• Fauci Tests Positive for Virus, Has Mild COVID-19 Symptoms – Associated Press
• Janet Yellen Is Struggling at the Treasury Job She Never Wanted – Bloomberg
• Most Parents Spend Over 20% of Their Income on Child Care – Bloomberg
• FDA Panel Endorses Covid Vaccine for Youngest Children – NBC News
• Parents Anxious to Vaccinate Young Children Describe an Agonizing Wait – New York Times

• With Powell’s Rate Hike, the Inflation Fight Begins in Earnest – Sebastian Mallaby, Washington Post
• Key Takeaways From the Fed's Rate-Hike Decision and Forecasts – Scott Lanman, Bloomberg
• Federal Reserve Must Do More Than Raise Rates by 75 Points – Mohamed A. El-Erian, Bloomberg
• The Fed Is Raising Interest Rates Again. What’s Next? – Hamza Shaban, Washington Post
• Inflation Could Put Election Deniers in Charge of Our Democracy – E.J. Dionne Jr., Washington Post
• Trump and Sanders Opened Doors. Inflation Is Closing Them – Ross Douthat, New York Times
• Stopping Inflation Is Going to Hurt – Emily Stewart, Vox
• Long Covid Is Showing Up in the Employment Data – Justin Fox, Bloomberg
• We’re Still Not in a Recession Despite the Stock Market Drop – Allan Sloan, Washington Post
• Housing Market Cooldown Will Only Lead to More Dysfunction – Conor Sen, Bloomberg
• It’s Almost as if Democrats Are Trying to Make Sure Trump Wins in 2024 – Marc A. Thiessen, Washington Post
• What if We Had Spent the Money on Climate? – David Wallace-Wells, New York Times
• The Fossil Fuel Industry Should Pay for Its Own Cleanup – Megan Milliken Biven, Virginia Palacios and Ted Boettner, American Prospect
• Seven Ways You Can Financially Prepare for a Recession – Michelle Singletary, Washington Post