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US Federal Reserve Raises Interest Rates, Promises More Pain

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As the United States heads into Novembers midterm elections the Federal Reserve on Wednesday announced another sharp increase in interest rates as i
As the United States heads into November’s midterm elections, the Federal Reserve on Wednesday announced another sharp increase in interest rates as it continues its struggle against stubbornly high inflation. The increase of three-quarters of a percentage point raised the benchmark federal funds rate target to between 3% and 3.25%, the highest it has been in nearly 15 years.
In announcing the change, the Fed said that further increases in the target rate would be ‘appropriate.’ On average, the members of the central bank’s Open Market Committee projected that the midpoint of the target range by year end would be about 4.25%.
The Fed’s battle against inflation has been less effective than policymakers had hoped. Annualized inflation in August was 8.3%, only slightly lower than it had been in July, and more than four times the Fed’s target rate of 2%.
Fed Chair Jerome Powell said in a press conference Wednesday that the Fed was committed to reducing inflation, even though doing so would require an extended period of slow economic growth and would likely increase the unemployment rate.
He characterized the Fed’s choice as being between two evils.
‘Higher interest rates, slower growth and a softening labor market are all painful for the public that we serve, but they’re not as painful as failing to restore price stability,’ Powell said.
Political uncertainty
The fight against inflation is taking place amid political uncertainty in the U.S. As for the midterms, some experts say Republicans stand a strong chance of taking over one of the two chambers of Congress, which would break Democrats’ unified control of the legislative and executive branches of government and allow Republicans to block much of President Joe Biden’s agenda.
The choice between rising prices and rising interest rates combined with higher unemployment may not be particularly appealing to voters, and neither alternative will likely benefit the incumbent president or his Democratic Party.
Pointing out how Americans are suffering from persistently high inflation has been a major part of Republicans’ campaign strategy this year, and with good reason. In early September, according to a poll taken by the Gallup organization, 56% of Americans reported that their families were experiencing at least ‘moderate hardship’ because of rising prices, with 12% characterizing the hardship as ‘severe.

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