The bond market gave the Federal Reserve an ultimatum: Raise rates, or we will.
So the Fed did the only thing it could do. Backed into a corner by rising Treasury yields and inflation, the central bank boosted its target interest rate Wednesday for the first time since 2023.
Americans have suffered from a persistent inflation problem for five years, and an interest rate hike is a powerful weapon that could help squash it. But it’s a blunt tool that comes with a nasty side effect: It can unintentionally turn the job market into collateral damage.
Still, for Fed Chairman Kevin Warsh & Co., this isn’t any ordinary inflation problem. It’s mainly a result of high energy prices caused by the war with Iran, and as my colleague Matt Egan noted in July: Warsh can’t reopen the Strait of Hormuz.
So the bond market got its wish Wednesday, and the reasonably strong job market and robust consumer spending probably gave the Fed enough room for error.
But the Fed is playing with fire. Raising interest rates risks slowing down the American economy without anything to show for it.
by CNN – The Fed was bullied into hiking rates. Now it hopes it didn’t royally screw up
