The Balance Today: News You Need To Know on Nov. 2, 2022

A Fed Rate Hike Today May Reduce Inflation, But Bring Us Closer To A Recession

U.S. Federal Reserve Chairman Jerome Powell

Drew Angerer/Staff / Getty Images

How much further will the Federal Reserve go to slam the brakes on the economy and control inflation?

We could get a clearer idea this afternoon when the Federal Open Market Committee, the group that sets the central bank’s benchmark fed funds rate, announces how much it will hike interest rates, a move that will increase borrowing costs on just about any loan you take out. 

The Fed is widely expected to hike rates by 75 basis points, bringing the rate to a range of 3.75% to 4%, its highest since 2008, in its fourth unusually large rate hike this year.

Many consumer loans like credit card debt and car loans are indirectly determined by that rate. Many banks use the fed funds rate as a benchmark to set their own prime rates that they use to determine interest rates on loans. The fed funds rate also influences mortgage rates. That means it’s likely going to get harder to borrow money to buy things, which is exactly what the Fed wants. The less people buy, the less demand there will be for goods and services, and—hopefully—companies won’t be able to raise prices at the fast and furious pace they have been for the past year. 

It could also make it harder for businesses to get money to invest and expand and hire workers, which means the more the Fed raises rates, the greater the likelihood the economy slows down so much it goes into a recession

One area where the Fed’s monetary tightening campaign has already taken a heavy toll is the housing market. While the average rate on a 30-year fixed-rate mortgage decreased slightly in the latest week for the first time in over two months at 7.06%, it was still close to its highest since 2002 according to the Mortgage Bankers Association. Those high interest rates have stifled homebuying and refinancing. The volume of mortgage applications dropped 0.5% in its sixth consecutive week of declines.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Board of Governors of The Federal Reserve System. "Policy Tools: Open Market Operations."

  2. Mortgage Bankers Association. "Mortgage Applications Decrease in Latest MBA Weekly Survey."

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