On Wednesday, the Federal reserve raised interest rates by .25% which is expected to bring interest rates to a range of 4.5-4.75%. Rates are at their highest levels since the 2008 financial crisis.
In a press conference, Chairman Jerome Powell signaled that future rate hikes could be in order. The Fed has already raised rates 8 times over the past twelve months, a strategy used to combat inflation.
Several Democrats, including Rep. Brendan Boyle (Pa.) asked the Fed not to go much further because, “Raising rates too high and too fast could endanger job growth.” It’s worth noting that higher interest rates are correlated with higher unemployment in macroeconomic theory.
Powell cited an “out of balance” labor market, citing 1.9 job openings for every unemployed person. This comes in the midst of mass layoffs across the tech sector.
Previous rate hikes were .5% and Powell commented that one of the reasons he slowed the rate to .25% was to have more time to understand how the rates are affecting inflation as well as the job market. When asked how many more rate moves he planned on making, Powell was evasive.
When Powell was asked about the debt limit, he insisted that Congress must raise the debt ceiling. If they do not, the US will default on its loans in early June.
Powell also commented on his belief in a ‘soft landing’ or the idea that the economy can return to normal levels of 2% inflation without much economic pain. Inflation remains at around 7%.
Markets reacted to his speech optimistically, ending the day over 1% higher.
