The Federal Reserve has been trying to slow inflation by raising interest rates, today issuing its smallest rate increase since June – raising the federal funds rate to a target range of 4.25 to 4.50 percent. Experts expect the Fed will continue to raise rates into next year, perhaps topping out at more than 5 percent. The Fed should stay on that course of action, says CEI Senior Economist Ryan Young.
“Some people fear rate increases will slow down the economy and spark a recession, but that fear is misplaced at current rates. Today’s rate increase may look like it has pushed rates to their highest level in 15 years. But when inflation is at least 5 percent, a 4.50 percent interest rate is still below zero in real terms.
“In other words, interest rates are still working to increase inflation, even as the Fed is trying to slow it. This is why the Fed is planning further increases and will likely continue to do so until rates finally climb back above zero in real terms. For context, the federal funds rate topped out at more than 18 percent during the worst of the 1970s stagflation yet was barely above zero in real terms.”