STEVE INSKEEP, HOST:
The Federal Reserve is expected to order another big jump in interest rates today.
RACHEL MARTIN, HOST:
Yeah. It's part of the central bank's ongoing campaign to bring down inflation. The Fed has already raised rates five times this year. Even so, prices just keep climbing.
INSKEEP: NPR's Scott Horsley joins us now. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning, Steve.
INSKEEP: OK. So what's happening?
HORSLEY: The Fed has been raising rates at an aggressive pace. Its benchmark interest rate was close to zero back in the spring. It's now above 3%. And by the end of today, it's expected to be close to 4%. That's the sharpest run-up in four decades. Greg McBride, who is chief financial analyst at Bankrate, says two big questions now are how much higher rates are likely to go and how long they're going to stay there.
GREG MCBRIDE: The cost of money is going up. Interest rates have risen at a whiplash-inducing speed. And we're not done yet. Rates are still likely to continue to move higher at least through year-end and into the early part of 2023.
HORSLEY: And that makes it more expensive to buy a house or a car or carry a balance on your credit card.
INSKEEP: How much higher might rates go?
HORSLEY: It's a moving target. On average, Fed officials estimated back in September that the benchmark rate would top out this year close to 4.5% and then go a little bit higher next year. So far, though, inflation has barely budged. So the forecast of how high rates will have to go keep getting pushed up. However high the interest rate eventually climbs, there's also the question of how fast it gets there. It's possible the central bank will slow the pace of rate hikes after today, so it can better assess how that's working in the economy. Esther George, who heads up the Kansas City Federal Reserve Bank, is among the policymakers who's pushing that approach.
ESTHER GEORGE: I have been in the camp of steadier and slower, my concern being that a succession of very supersized rate increases might cause you to oversteer and not be able to see those turning points.
HORSLEY: The Fed chairman, Jerome Powell, is set to meet with reporters this afternoon. And markets will be listening closely for any signal that smaller rate hikes might be in store at the next few Fed meetings.
INSKEEP: I'm thinking about the difference between the tools the Fed has and things that seem to have contributed to inflation over the past couple of years, like the supply chain problems or labor shortages, a shortage of people in the workforce. But what the Fed has to respond is these interest rate hikes. How are those hikes actually working, if at all? And how are they affecting the economy?
HORSLEY: Well, you're right. The Fed can't do much about supply chain issues. What they can do is work on demand. And we are starting to see somewhat slower growth in consumer demand, although not as much as you might think. Keep in mind, a lot of people managed to sock away money in the early months of the pandemic. Now, those savings are a lifeline for families. They're helping them cushion the pain of rising prices. But that cushion can also muffle the effects of the Fed's interest rate hikes. So the central bank winds up having to push the brakes even harder. Now, the housing market has slowed pretty sharply, as mortgage rates are now above 7%. Kansas City homebuilder Shawn Woods says he's gone from selling a dozen houses a month to just three or four.
SHAWN WOODS: I think we're in for a rough six or eight months. Typically, housing leads us into downturns, and it leads us out of downturns. And, I think, from the housing perspective, we've probably been in a housing recession since March or April.
HORSLEY: Despite growing concerns about a recession, the Biden administration and most members of Congress have stayed out of the Fed's way. They know inflation is still a top concern for voters. We are starting to see some cracks, though. This week, Massachusetts Senator Elizabeth Warren and some of her colleagues wrote a letter to Powell challenging the Fed's approach. They're warning that aggressive rate hikes could put millions of people out of work.
INSKEEP: Scott, thanks so much.
HORSLEY: Good to be with you, Steve.
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