Federal Reserve Chair Jerome Powell announced Wednesday that the central bank will raise interest rates for the first time since 2018. A series of increases is likely to follow through the rest of the year. The decision marked the end of two years of near-zero rates, reflecting the Fed’s emergency measures in response to the COVID-19 pandemic.
Now, monetary policymakers have to contend with inflation at a 40-year high and a tight labor market. By raising interest rates, the Fed can slow the economy down like a “chaperone who has ordered the punch bowl removed just when the party was really warming up” — a metaphor used by then-Fed Chair William McChesney Martin Jr. in a 1955 speech. Yet slowing the economy too much risks tipping it into a recession.
Can the Fed thread the needle in tamping down inflation without squeezing the economy? Taking reporters’ questions Wednesday, Powell said … yes.
“In my view, the probability of a recession within the next year is not particularly elevated,” he said. “We’re fully committed to bringing inflation back down and also sustaining the economic expansion.”
“Marketplace” host Kai Ryssdal spoke with Nela Richardson, chief economist at ADP, about what the Fed’s action means for the economy. To listen, use the media player above.
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Correction (April 6, 2022): The headline on an earlier version of this story misstated the amount of the Federal Reserve’s interest rate increase. The increase was a quarter of a point.