Supply chain snarls are no longer blocking trade, thereby lowering the cost for new and used cars, furniture and appliances. Gas and energy prices have fallen steadily. The rise in rental costs has eased as more newly built apartments have come online. The consumer price index rose 5 percent in March from a year earlier, sharply lower than its 9.1 percent peak in June. In the United States, some major drivers of higher prices have stalled or started to reverse, causing slowdowns in overall inflation. European Central Bank President Christine Lagarde is expected to announce another interest rate increase Thursday, after inflation figures released Tuesday showed that price increases ticked up last month.Ĭonsumer prices rose 7 percent in the 20 countries that use the euro currency in April from a year earlier, up from a 6.9 percent year-over-year increase in March. The Fed’s rate hike Wednesday comes as other major central banks are also tightening credit. debt could potentially lead to a global financial crisis. Wall Street traders were also unnerved by this week’s announcement from Treasury Secretary Janet Yellen that the nation could default on its debt as soon as June 1 unless Congress agrees to lift the debt limit, which caps how much the government can borrow. job openings dip to 9.6 million as interest rates cool labor market In December, the Fed projected growth of just 0.5 percent in 2023. That could be enough to cause a recession. growth by 0.4 percentage point this year. Goldman Sachs estimates that a widespread pullback in bank lending could cut U.S. Investors have grown anxious about whether other regional banks may suffer from similar problems. bank failure ever and the third major banking collapse in the past six weeks. The turmoil in the nation’s banking sector, which re-erupted last weekend as regulators seized and sold off First Republic Bank, has intensified the pressure on the economy. Hiring has decelerated, job postings have declined and fewer people are quitting their jobs for other, typically higher-paying positions. Manufacturing, too, is weakening.Įven the surprisingly resilient job market, which has kept the unemployment rate near 50-year lows for months, is showing cracks. The economy appears to be cooling, with consumer spending flat in February and March, indicating that many shoppers have grown cautious in the face of higher prices and borrowing costs. The Fed’s decision Wednesday came against an increasingly cloudy backdrop. Congressional Republicans are demanding steep spending cuts as the price of agreeing to lift the nation’s borrowing cap. The Fed is now also grappling with the threat of a prolonged standoff around the nation’s borrowing limit, which caps how much debt the government can issue. WATCH: Economic concerns grow as First Republic Bank becomes 3rd major bank to fail this yearįed economists have estimated that tighter credit resulting from the bank failures will contribute to a “mild recession” later this year, thereby raising the pressure on the central bank to suspend its rate hikes. Chair Jerome Powell had said in March that a cutback in lending by banks, to shore up their finances, could act as the equivalent of a quarter-point rate hike in slowing the economy. The banking upheaval might have played a role in the Fed’s decision Wednesday to consider a pause. All three failed banks had bought long-term bonds that paid low rates and then rapidly lost value as the Fed sent rates higher. Yet the Fed’s efforts have only partly succeeded in taming the worst inflation bout in four decades, and the surge in rates has contributed to the collapse of three large banks and turmoil in the banking industry. The Fed’s latest move, which raised its benchmark rate to roughly 5.1 percent, could further increase borrowing costs. The Fed’s rate increases over the past 14 months have more than doubled mortgage rates, elevated the costs of auto loans, credit card borrowing and business loans and heightened the risk of a recession. It reiterated that the impact of pullback in bank lending “remains uncertain.” In a statement after its latest policy meeting, the Fed said that while the banking system is “sound and resilient,” the upheaval in the financial system could slow borrowing, spending and growth. Watch Powell’s remarks in the player above. But the Fed also signaled that it may now pause the streak of 10 rate hikes that have made borrowing for consumers and businesses steadily more expensive. WASHINGTON (AP) - The Federal Reserve reinforced its fight against high inflation Wednesday by raising its key interest rate by a quarter-point to the highest level in 16 years.
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