Fed Officials Prepare for ‘Restrictive’ Levels to Slow Inflation


When Fed officials got together earlier in May, they decided a half-point rate increase was in order. As much as they didn’t want to do it, the resulting weakening of the economy would help curb the four-decade-high inflation. They also agreed that with several months of increases coming, they could make a proper assessment of these rate increases, and if the economy has been responding properly, adjust the rates.

The half-point short-term loan increase is double the usual rate hike for the Fed, and the minutes from their meetings indicate they should be occurring each month through the summer. While this isn’t something anyone should be surprised by, the rate increases month over month are adding up and dropping consumer confidence in not only President Biden, but the economy as a whole as well. This means fewer investments coming forth, and further inhibiting growth.

With the stock market drop, and a slowed economy, members of the Fed are having a rough debate about how to raise the credit during the June and July meetings. Their decisions about raising and lowering rates can severely impact the economy, and while it’s defeating to hear that interest is going up more, it’s a positive sign as it means we aren’t going to rocket ship to Zimbabwe level inflation soon.

They tried avoiding this kind of inflation back in September when they started with the rate increases, from .75 to a full point, which was the largest increase since 2000. The group also announced plans to lower the $9 trillion balance sheet. A figure that has more than doubled since the start of the pandemic. A $4.5 trillion bond purchase from the Treasury and mortgage bonds make up most of this increase. June 1st marks the deadline for them to decide what they want to do, and all indications show that they should start to mature, which will, in turn, drive up the long-term borrowing rates.

Raising interest rates to slow inflation, and to get people confident in the economy again can only work so long. The American people are worried about the economy under Biden, and they have every right to be. Stocks have dropped sharply, and the confidence in purchasing a new home is down significantly as well. While many are still picking up big-ticket items, they are doing so out of fears that interest rates will grow too much, or that the pricing for things like cars and houses will continue to skyrocket.

With mortgage rates up to two points since the start of the year, fewer current owners will be refinancing their mortgages, and fewer people are expected to buy a house either. Combined, this can force interest rates to go up again, hence the preparation for ‘restrictive’ levels. At this point we are restricted from seeing a massive influx in mortgages, and from being able to tolerate much more in the way of rate increases. This area is not one the US should be in, but given the current levels of American trade, and the global economy, it’s not surprising.

As the American people look to the Fed and others for guidance about the future projections for the economy, they are filled with concerns about what could be on the way. There is a total lack of hurry to fix the economy, and there is only so much the Fed can do without help directly from President Biden, or some of his cronies to make some real changes. Either way, if they don’t step up and make some significant changes, all the interest rate hikes in the world won’t help.