While the Federal Reserve Bank attempts to slow down the economy with interest rate hikes, recent reports show a growing U.S. economy.
Last week, the Bureau of Economic Analysis reported that real gross domestic product (GDP) had increased at an annual rate of 2.6% in the third quarter of 2022. The Bureau of Labor Statistics Tuesday reported that job openings increased by 437,000 in September.
During the second quarter of the year, real GDP had decreased. More complete data regarding the third quarter is set for release at the end of this month. Along with a considerable increase in open positions, the BLS also reported that hires “edged down” in September and that separations decreased.
In an effort to tame rising inflation, the Fed has raised interest rates five times already this year, starting with a 25 basis point hike in March and a 50 basis point hike in May. Of these five hikes, two 75 basis point hikes were announced in the third quarter, most recently on Sept. 21, per Forbes Advisor.
As a new month of trading kicked off Tuesday, the Fed also began its November meeting, which is expected to bring a fourth consecutive 75 basis point interest rate hike, according to CNBC. Stocks “tumbled” amid the new reports and anticipation of more rate hikes, said the outlet.
“Anytime you get good news the market doesn’t like it because it just means that the Fed is probably going to be tightening more and potentially for longer,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, per CNBC. “We’re still in the bad news is good news cycle.”
This might seem counter-intuitive, and some experts agree. In fact, economist Chris Thornberg of Beacon economics told Audacy’s “The Homestretch” podcast that the Fed’s approach to bringing down inflation with rate hikes is a “stupid” way to deal with the nation’s current inflation problem.
Rising interest rates – defined by Wells Fargo as the cost a customer pays to a lender for borrowing funds over a period of time – make it harder for consumers to spend money. This is intended to slow the economy and thus prevent increasing demand (and increasing costs) of consumer goods. However, this approach comes with recession risks.
Democratic lawmakers concerned about these risks “are warning Fed chair Jerome Powell and other Fed members to slow down the rate hikes because they fear even tighter monetary policy will lead to a recession,” according to CNN Business. “But as long as the jobs market remains healthy the Fed is probably going to continue to focus solely on its price stability mandate.”
In September, CNBC reported that the Fed’s goal is to get inflation down to 2%, an approach that has also received criticism, according to the Brookings Institution. As of the most recent BLS report, inflation had increased 8.2% over the previous 12-month period.
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