On The Money — Fed ramps up rates with recession fears rising

The Federal Reserve is ramping up its efforts to bring inflation down from four-decade highs. We’ll also look at the surprise revival of major pieces of Biden’s economic agenda and the passage of a big bipartisan deal. 

But first, Justice Clarence Thomas has lost one of his jobs

Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan LaneAris Folley and Karl Evers-Hillstrom. Someone forward you this newsletter? Subscribe here.

Fed hikes interest rates amid recession fears

The Federal Reserve announced another steep interest rate hike Wednesday, ramping up its efforts to bring inflation down from four-decade highs.  

  • The Federal Open Market Committee (FOMC), the panel of Fed officials responsible for monetary policy, said Wednesday it would boost the central bank’s baseline interest rate by 0.75 percentage points to a range of 2.25 to
    2.5 percent.  
  • The Fed has now hiked interest rates by 75 basis points twice over the past two months, a remarkably fast increase that is likely to slow the economy. All
    12 voting members of the FOMC supported the rate hike.  

“Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook,” said Fed Chairman Jerome Powell at a press conference following the announcement.  

He said that while “another unusually large increase” may be in store, the Fed will not give further hints about how far rates will climb. 

The background: While the Fed’s rapid rate hikes have throttled the housing market, suppressed stock values and spurred a small rise in layoffs, they’ve yet to make a noticeable impact on inflation.   

Consumer prices rose 9.1 percent annually in June and 1.2 percent last month alone, according to Labor Department data released this month. Though war-related supply shocks beyond the Fed’s control drove much of the June inflation surge, prices across the economy grew at much faster rates despite the central bank’s actions. 

Sylvan has more here.

DEAL WITH IT

Manchin announces deal with Schumer on taxes, climate 

Sen. Joe Manchin (D-W.Va.) announced on Wednesday that he has struck a deal with Senate Majority Leader Charles Schumer (D-N.Y.) on legislation aimed at advancing key pieces of President Biden’s agenda, including measures that target taxes, lowering drug prices and combating climate change. 

A joint statement from the two offices said they finalized a legislative text that will invest about $300 billion in deficit reduction and $369.75 billion in energy security and climate change programs over 10 years. 

  • A more detailed estimate says that the package would raise a total of
    $739 billion in revenue through programs including a 15 percent corporate minimum tax, prescription drug pricing reform and IRS tax enforcement. In addition to climate spending, the bill will also spend 64 billion on extending the Affordable Care Act. 
  • Manchin’s statement said that the deal invests in technologies that would bolster various types of energy including fossil fuels, renewables, nuclear hydrogen and energy storage. He added that it also invests in reducing both domestic emissions of planet-warming carbon and methane, and in global emissions reductions. 
  • On the tax side, Manchin said he’d adopt a policy that “protects small businesses and working-class Americans while ensuring that large corporations and the ultra-wealthy pay their fair share.” 

Some Democrats were encouraged by the news, though others have been hesitant to comment on the deal until more details emerge. Democrats told reporters they plan to find out more about the forthcoming plan at a caucus meeting later on Wednesday. 

With a nearly month-long recess scheduled in August, timing around potential passage remains unclear. Democrats are also facing a crunch on legislative time, as the critical midterm elections approach and a government funding deadline looms in late September. 

Aris and The Hill’s Rachel Frazin have more here.

PINCH THOSE PENNIES

Five ways the Fed interest rate hike will impact Americans’ wallets 

The Federal Reserve is showing no signs of letting up in its aggressive fight to combat rising prices, tightening wallets as it hikes interest rates at the fastest pace in decades to get a handle on red-hot inflation. 

The central bank bumped its baseline interest rate range on Wednesday by another 75 basis points. The Fed raised rates by the same amount last month in a bid to counter soaring costs, marking its first rate hike of that magnitude in nearly thirty years.  

Here are some ways the rising rates will impact Americans:

  • Higher mortgage rates: Americans are already seeing higher mortgage rates as financial markets have tried to anticipate the Fed’s response to rising inflation. 
  • More bang for your savings: Rate hikes often mean higher credit card rates as the Fed tries to cool off demand by making it more expensive for Americans to borrow money. 
  • Unemployment could rise: Higher interest rates could lead to rising unemployment in the months ahead, experts say, underlining one of the most difficult challenges the Fed faces in its effort to tackle climbing inflation. 

Aris has more here.

COUNTERING CHINA

Senate passes chips, science bill aimed at China competitiveness

The Senate voted with a large bipartisan majority Wednesday to pass a $280 billion bill to subsidize the domestic chip manufacturing industry and provide tens of billions of dollars for scientific research to keep the country’s technological edge in the global economy.   

The 64-33 vote caps more than a year of negotiations over the bill, which stalled for months in the House because of progressive Democrats’ objections to trade-related and other provisions in the bill, such as language to provide security safeguards for technological research. 

The bill, which is expected to have enough votes to pass the House, would be one of the biggest legislative accomplishments of the Congress and would be a boon to the nation’s high-tech manufacturing industry.   

  • The bill aims to boost domestic microchip production to reduce U.S. reliance on Chinese- and other foreign-manufactured chips in military hardware and a host of common products.  
  • President Biden applauded passage of the bill and said it would lower prices “on everything from cars to dishwashers.”  
  • The bill now moves to the House, where Democratic leaders will try to pass it before lawmakers leave town for the August recess at the end of the week.  

Alexander Bolton lays it out here

Read more: Chips bill nears finish line without aggressive China trade restrictions

Good to Know

Federal Reserve Chairman Jerome Powell said Wednesday that the U.S. economy is performing “too well” to be in a recession.  

“I do not think the U.S. is currently in a recession. And the reason is, there are just too many areas of the economy that are performing, you know, too well,” Powell said. 

Here’s what else we have our eye on: 

  • The Federal Trade Commission (FTC) is trying to block Meta’s acquisition of a virtual reality (VR) company with a popular fitness app through a lawsuit filed Wednesday.  
  • The Energy Department announced on Friday that it will give a $102 million loan to expand a processing facility for materials used in electric vehicle batteries.

That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow.

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