With inflation still running high, the Fed announced another 75 basis point increase on Wednesday. Now, inflation hawks are hoping the Fed will go “full Volcker,” meaning raising interest rates until they choke off demand — even if they cause a devastating recession. However, some argue that may not be the best approach.
The messy true story of the last time we beat inflation
As inflation persists at multi-decade highs, the pressure is on the Federal Reserve, above all other economic policymaking institutions, to halt rising prices: The central bank announced another interest rate increase Wednesday in its ongoing efforts to combat inflation.
Since the climax of the last major inflation crisis in the 1970s, independent central bank chiefs willing to administer proverbial harsh medicine — raising interest rates so high they potentially cause a recession — have reigned like near-deities over our economic lives.
In this, Fed Chair Jerome Powell stands in the shadow of his most legendary predecessor, the late Paul Volcker. Inflation hawks want Powell to go “full Volcker”: follow the elder banker’s example from 1979 and raise interest rates high enough to choke off demand, even at the cost of a devastating recession.
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British pound sinks 2% against the dollar after Bank of England recession warning
The British pound on Thursday sank against the U.S. dollar after the U.K.’s central bank said it expected a recession to last for all of 2023 and the first half of 2024.
Sterling was trading at $1.1162 at 1:20 p.m. London time, its lowest level since Oct. 14.
It came as the Bank of England raised rates by 75 basis points to 3% in its largest single hike for 33 years.
In a statement, it said it expected rates to peak at a lower level than currently priced into financial markets, which is around 4.6%.
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Yahoo Finance/Jared Blikre
The Fed isn’t easing up on its fight against inflation: Morning Brief
The Federal Reserve raised interest rates once again on Wednesday, and market watchers wasted no time trying to predict the central bank’s future actions and adjust their market positions accordingly.
Stocks rallied after the Federal Reserve announced a rate hike of 75 basis points but hinted that it would raise rates at a slower pace from now on.
Then quities sold off after Fed Chair Jerome Powell emphasized that it’s “premature” to discuss a pause in rate increases. Bears won the day, with the Dow down just over 500 points and the Nasdaq Composite off 3.4%.
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