The Federal Reserve Board voted Wednesday to raise their target interest rate 75 basis points (.75%), the largest increase since 1994. This interest rate—called the federal funds rate—is the rate financial institutions charge each other for short-term loans. The increase in the benchmark federal funds rate will lead to increases in the rates on other forms of lending, such as mortgages, auto loans, and credit cards. The Federal Reserve Board has downgraded its 2022 economic outlook, lowering its economic growth projection for 2022 from 2.8% to 1.7% and increasing its 2022 inflation projection from 4.3% to 5.2%.
EJ Antoni, research fellow for regional economics with The Heritage Foundation’s Center for Data Analysis, released the following statement Wednesday in response to the Federal Reserve’s belated interest rate increases:
“The Federal Reserve has utterly failed the working and middle class. The Fed has financed trillions of dollars in unfunded federal spending, which Americans are paying for through the hidden tax of inflation.
“These interest rate increases are simply too little, too late. The time to act was over a year ago. The Fed spent that time adding liquidity to provide Congress and President Biden with spending money, causing high inflation and setting the nation on course for a recession. To restore price stability and long-run economic growth, the Fed needs to act aggressively and cut off the ‘free’ money to Congress and the president.”
Joel Griffith, research fellow for economic policy with The Heritage Foundation’s Roe Institute, also released the following statement:
“Since early 2020, the Federal Reserve has printed nearly $5 trillion to purchase government debt, mortgage-backed securities and other assets. The Federal Reserve’s complicity in financing Congress’ outrageous spending spree of the past two years is largely to blame for sky-high inflation, the new housing bubble, and rampant speculation in the financial markets.
“The exorbitant federal spending financed by the Federal Reserve’s money printing is increasing inflation. Now the bill is coming due, and the resulting rate hikes will slow economic growth.
“These hikes are certainly going to cause hardship, but they won’t be the root cause of the economic slowdown—it’s the spending and printing we’ve already endured, coupled with the lasting consequences of papering over the senseless COVID shutdowns.”