Interest rates at 16-year high, but officials signal end to tightening campaign
Cookeville – The Fed raised the benchmark interest rate by a quarter point Wednesday. The unanimous decision puts the key benchmark federal funds rate at a range of 5% to 5.25%, a 16-year high.
NAR Chief Economist Lawrence Yun said in a statement the hike is harmful in multiple ways.
“The latest interest rate hike by the the Federal Reserve is unnecessary and harmful,” said Yun. “Consumer price inflation has been decelerating and will continue this trend. After the awful 9% consumer price inflation in the summer of last year, the latest data shows 5% inflation. It will be even lower as the heavyweight component to inflation, which is housing rent, will inevitably slow down given the 40-year high robust construction of new empty apartment units.
Yun said the monetary policy is already tightening and banks are the ones suffering most.
“In addition, there is significant additional monetary policy tightening already occurring,” said Yun. “The fast rate hikes by the Fed have upended the balance sheets of many small regional banks. They are becoming zombie-like banks, unable to lend even to good businesses as they are more concerned with balance sheet shuffling for survival.”
With every rate hike the damage worsens, according to Yun.
“This situation will worsen with each additional rate hike by the Federal Reserve,” continued Yun. “Only by stopping the rate hikes or even a reversal later in the year after verifying much calmer inflation rates will the small banks have a better chance of survival against the big banks.”
This is the 10th consecutive rate aimed at “combating high inflation and slowing the economy.”
For the first time in a year, policymakers signaled future increases are not a given and that further policy moves will hinge on “incoming information.”
UCBJ file photo.