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MI Responds: Federal Reserve Raising Interest Rates by Half of a Percentage Point

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MI Responds: Federal Reserve Raising Interest Rates by Half of a Percentage Point

May 4, 2022
EconomicsOtherMonetary Policy

Manhattan Institute scholars react to news Wednesday of the Federal Reserve raising interest rates by half of a percentage point:

"Today’s rate increase of 0.50 percentage points is necessary and mostly expected. Combating 8.5 percent inflation should involve regulatory reform, tariff removal, and yes, monetary tightening. Even today’s rate hike will still leave real interest rates negative, and far below what would be considered a neutral interest rate given today’s inflation and economic fundamentals. Americans should expect more interest rate hikes throughout the year as necessary to bring inflation back down. Congress and the president can help by avoiding any new expensive fiscal expansions."

Brian Riedl is a senior fellow at the Manhattan Institute. His forthcoming report, being released next week, will evaluate the fiscal legacy of the Trump era.

"At long last the Federal Reserve began to move policy toward a neutral position in March. Today’s 50 basis point tightening continues along that path, albeit only incrementally. With inflation hitting 40-year highs and job openings continuing to break records, the Fed remains far behind the curve. With the policy rate remaining below neutral for the foreseeable future, monetary policy is still accommodative, albeit less so than at the start of the year. The Fed seems to have taken more aggressive action off the table in order to avoid spooking markets, but this comes at a cost of potentially prolonging the inflationary bout and leading to a harder landing down the road."

Noah Williams is an adjunct fellow at the Manhattan Institute and the Juli Plant Grainger Professor of Economics and director of the Center for Research on the Wisconsin Economy at the University of Wisconsin–Madison.

Photo by MicroStockHub/iStock

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