Good evening. President Joe Biden is set to deliver a speech tonight warning about threats to U.S. democracy. Earlier, the Federal Reserve delivered yet another jumbo interest rate hike while hinting it may slow its pace moving forward as threats to the economy intensify. Fed Chair Jerome Powell sounded fairly hawkish, though, insisting that rate hikes still "have a ways to go."
Here’s what you need to know.
The Fed Announces Another Jumbo Rate Hike, and a Tough Road Ahead
The Federal Reserve on Wednesday raised its benchmark interest rate by 75 basis points, moving its target range to between 3.75% and 4%. The hike was widely expected, leaving analysts to focus on whatever clues the Fed might offer about its plans for the future.
The big question is whether the Fed intends to reduce the size of its next interest rate hike in December, which will come on the heels of four increases of 75 basis points in a row stretching back to June. Many analysts expect the next increase to be reduced to 50 points, followed by either smaller increases or a pause. Tuesday’s statement from the Federal Open Market Committee gave them a glimmer of hope that this might just be how it plays out.
"In determining the pace of future increases in the target range," it said, "the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
The mention of a "lag" is being seen by some as dovish, suggesting that the Fed is willing to slow down and wait to see if its policies are working to bring inflation under control. "This is the Fed’s way of telling us that a slowdown in the pace of future hikes is upon us," analyst Peter Boockvar said in a note.
But other details from the FOMC statement and Fed Chair Jerome Powell’s comments at an afternoon press conference were more hawkish. Powell told reporters that he thinks rates may go higher than previously expected and stay high for a significant amount of time. "The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive," he said.
Powell also splashed cold water on the idea of ending the rate increase campaign any time soon. "It is very premature to be thinking about pausing," he said. "We think we have a ways to go—we have some ground to cover with interest rates."
Recession odds rising? Inflation is still far higher than the Fed’s 2% target, and Powell made it clear that he plans to keep interest rate high for as long as it takes to bring inflation under control. The biggest risk for the economy, he said, is "if we don’t get inflation under control because we don’t tighten enough."
Asked if he thinks a "soft landing" — in which inflation eases without a recession — was still possible, Powell said that while it’s still possible, the odds are not improving. "Inflation has not come down," he said. "Policy needs to be more restrictive, and that narrows the path to a soft landing."
The bottom line: The Fed signaled today that while its next interest rate hike may be smaller, its war on inflation will continue until it gets results, which could take longer than previously expected. "Slower for longer," said Michael Feroli, J.P.Morgan’s chief US economist, in a note to clients. "The Fed opened the door to dialing down the size of the next hike but did so without easing up financial conditions."
Quote of the Day
"Woah! If you’re the kid in the back asking if we are nearly there yet and Dad says we have a ways to go then you buckle in for a journey."
– Rob Waldner, chief fixed income strategist at Invesco, as quoted by The New York Times about Powell’s press conference comments indicating that it’s "very premature" to talk about a pause in interest rate hikes.
You’ll see a flood of polls in the news over the final days of the midterm campaign, but these numbers may tell you much of what you need to know ahead of Election Day on Tuesday.
A new CNN poll conducted by SSRS finds that the economy and inflation are far and away the top concerns for likely voters, with 51% citing those issues as being most important to them followed by 15% who said abortion rights and 9% who pointed to voting rights.
So, as you’ve heard so often over the last 30 years, it’s the economy, stupid. And how do voters feel about the economy? Three-quarters of respondents in the CNN poll say they think the economy is in a recession now, including 91% of Republicans, 74% of independents and 61% of Democrats.
The latest poll from Politico and Morning Consult found similar views, Politico’s Brittany Gibson reports:
Much like the CNN poll, the Politico survey found that 43% of voters called economic issues their top priority, far ahead of "women’s issues," "security issues," or "seniors issues."
And with economic pessimism so prevalent, who do voters trust more to handle the economy? The CNN poll finds a massive advantage for Republicans on the question, with 71% of likely voters saying they trust the GOP more compared to just 18% for Democrats and 11% who say they don’t trust either party. Republicans had a narrower 46-39 edge in the Politico poll on the question of which party was more trusted to handle the economy. But that poll also found that voters were more likely to have heard about high inflation than about falling gas prices or wage gains.
The bottom line: Voters are pretty pessimistic about the economy overall, even as some surveys have found they feel fairly upbeat about their own finances.
- Fed Ushers In Fourth Jumbo Rate Increase to Fight Inflation – New York Times
- Powell: Rate Hikes May Slow, but Inflation Fight Hardly Over – Associated Press
- The Fed and White House Combine for a Day That Cuts to the Heart of Biden’s Political Problem – CNN
- Amid Political Violence and Rise of Disinformation, Biden Looks to Keep Focus on Economy – Politico
- White Suburban Women Swing Toward Backing Republicans for Congress – Wall Street Journal
- Another Explanation for Higher Costs: Corporate Greed – Washington Post
- The Oil and Gas Paradox Threatening Biden’s Party at the Polls – Politico
- White House Deletes Tweet Giving Biden Credit for Social Security Increases – The Hill
- Inside the Intense Rivalry Between Mitch McConnell and Rick Scott – CNN
- Kemp's Secret Weapon in Georgia Race Against Abrams: $5 Billion in Covid Funds – Bloomberg
- Is Inflation Biden's Fault? Could Tax Cuts Fix It? Here's What We Know – Time
- Biden Pitchman Landrieu Hawks Infrastructure and Hope – Associated Press
- Trump Lawyers Saw Clarence Thomas as Key to Stop Biden Electoral Count, Emails Show – Washington Post
- New ‘Prosperity Index’ Ranks US States on More Than Just Money – Bloomberg
Views and Analysis
- Takeaways From a Day of Market-Moving Actions by the Fed – Jeanna Smialek, New York Times
- 5 Key Takeaways From the Federal Reserve’s Rate Hikes – Sylvan Lane, The Hill
- Can the Fed Fight Inflation Without Triggering a Meltdown? – Steven Pearlstein, Washington Post
- Taming Inflation Is Only Half the Fed’s Battle – Connor Sen, Bloomberg
- Fed Should Make Clear That Rising Profit Margins Are Spurring Inflation – Paul Donovan, Financial Times
- What Could Still Be Done if Republicans Win Back Congress – Jennifer Rubin, Washington Post
- In the Midterms, GOP Extremism Is the Ghoul in the Room – E.J. Dionne Jr., Washington Post
- The US Is a Waning Economic Superpower. When Will Policymakers Realize It? – Seth Benzel and Laurence Kotlikofff, The Hill
- ‘Elites Are Making Choices That Are Not Good News’ – Thomas B. Edsall, New York Times
- Three Viruses Pose a Threat This Winter. Here’s How to Prepare – Leana S. Wen, Washington Post
- A Marshmallow by Any Other Name Is Just As Sweet, but Maybe Not Taxable – Renu Zaretsky, Tax Policy Center