Dawit Kebede

CUNA Research: Fed raises rates in line with expectations

July 27, 2022

CUNA Senior Economist Dawit Kebede issued the following statement following the Federal Reserve meeting today:

“The Federal Reserve Open Market Committee (FOMC) increased the federal funds rate by 75 basis points, in line with consensus expectation, as inflation remains a challenge to the economy. This raises the target range to 2.25% to 2.50%, which is considered neutral, from its near zero stimulative level in March. The FOMC also announces that it anticipates more increases in future meetings to bring inflation down to its 2 percent goal.  

“This indicates that the Fed is committed to bringing price increases under control despite slowing spending and production. The war in Ukraine and pandemic-induced supply constraints are two major reasons behind the record inflation rate whose influence on the economy cannot be altered by monetary policy.  

“However, further rate increases and quantitative tightening will be restrictive and affect consumer demand because it raises the cost of borrowing. This reduction in consumer demand increases the likelihood of a recession in the next year as it accounts for two-thirds of the economy.”