With inflation at 40-year highs of 8.6% and the stock market wallowing in bear-market territory, the Federal Reserve is reportedly weighing a three-quarters of a point interest rate hike to shock the market.
Original plans had suggested a half-point hike this month and another next month, but data is increasingly negative on inflation, so the two-day Federal Reserve meeting might reveal a larger increase by 0.75-point hike, The Wall Street Journal reported Monday.
"It's a one-two punch," Grant Thornton chief economist Diane Swonk told the Journal. "They've got to go now with 75. The Fed is behind the curve, and they know it.
"The data now is not good. The data is saying they have to do more. We're moving into a more inflation-prone world, and they know that, and if they don't derail it now, this could be incredibly corrosive."
Former President Bill Clinton was in his first midterm year the last time the Fed had to hike interest rates by 0.75. Just last month, the Fed raised rates by a half point for the first time since Clinton's last year in office.
Fed Chairman Jerome Powell has been cautious on raising rates quickly, but he also teased last month more aggressive actions if inflation continued to rise, according to the Journal.
"What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down," Powell said earlier this year. "And if we don't see that, then we'll have to consider moving more aggressively."
Powell, though, anticipated "further surprises" in the inflation data, adding, "we therefore will need to be nimble in responding to incoming data and the evolving outlook."
Now, both investment banks Barclays and Jefferies said they expected a 0.75-point hike this week.
"We believe that risk-management considerations call for aggressive action to reinforce the Fed's inflation-fighting credibility," Barclays economists wrote in a Monday report, adding "risks of prolonged inflation have intensified," according to the Journal.
Mortgage rates Monday for a 30-year fixed loan were above 6%, the highest since 2008 – which was around the housing market crash and former President Barack Obama's impending election.
Powell is going to be delivering the results of the two-day meeting Wednesday and testifying before Congress later this week.
Eric Mack ✉
Eric Mack has been a writer and editor at Newsmax since 2016. He is a 1998 Syracuse University journalism graduate and a New York Press Association award-winning writer.
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