Federal Reserve Commits to Fifth Interest Rate Hike This Year

On Wednesday, this week, the Federal Reserve announced they will raise interest rates again, marking the fifth such hike so far this year. Concluding a two-day monetary policymaking session, the central bank updated its Summary of Economic Projections which included some notes on the painful subject of raising rates (again).

In a statement, the 12-member Federal Open Market Committee unanimously “decided to raise the target range for the federal funds rate to 3 to 3.25 percent and anticipates that ongoing increases in the target range will be appropriate.”

The Fed’s quarterly report indicated a disappointing outlook on the labor market and overall economic growth. In the report, the bank found that the median unemployment rate jumped much higher than they expected. In June, the Fed officials projected the unemployment would squeak up from 3.7 percent to 3.9 percent. Unemployment inched up to 4.4 percent, instead.

This was not the only disappointing metric in the report. The Fed revised the US gross domestic product—the core measure of national economic output—down from 1.7 percent (in June) to 0.2 percent. Of course, this number is far lower than analysts had estimated: about 0.7 percent. Most importantly, two consecutive quarters of negative growth is a commonly accepted definition of economic recession.

If these were not enough, concerns about inflation are higher than ever. The Fed prefers to measure rising prices using Core Personal Consumption Expenditures calculations; this year it is projected to reach 4.5 percent; and 3.1 percent next year. Initially, the Fed projected only 4.3 percent and 2.7 percent, respectively.

It seems that no matter which metric they use, the data is not so favorable, which generally leads to higher interest rates. This trickles down to consumers, then, who will definitely feel the pain in their purses and pockets. For example, current Moody Analytics projections estimate that consumers will spend approximately $460 more, per month, on groceries than the same time last year. Housing prices are also higher in many parts of the country—some far more significantly than others—despite the fact that mortgage rates have spiked.