Overnight Finance

On The Money — Fed starts hiking rates as prices climb

Happy Wednesday and welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. Subscribe here: thehill.com/newsletter-signup.

Today’s Big Deal: The Federal Reserve kicked off a series of interest rate hikes Wednesday and we’ll tell you what it means for your budget. We’ll also look at how President Biden is responding to a sharp drop in oil prices and a Democratic effort to give regulators more power to block mergers.

For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom.  Reach us at slane@thehill.com or @SylvanLane, afolley@thehill.com or @ArisFolley and kevers@thehill.com or @KarlMEvers

Let’s get to it.

 

Fed hikes interest rates to fight record inflation 

The Federal Reserve on Wednesday increased its baseline interest rate range, launching the first in what will likely be a series of rate hikes meant to fight inflation.  

  • The Federal Open Market Committee (FOMC), the panel of Fed officials responsible for setting monetary policy, increased the federal funds rate by 0.25 percentage points to a range of 0.25 to 0.5 percent.  
  • The FOMC also projected roughly six more rate hikes this year, along with slower growth and higher inflation. 

The hike comes almost exactly two years after the Fed slashed rates to near-zero levels and began buying billions of dollars of Treasury bonds and mortgage-backed securities each month to stimulate the economy through the COVID-19 recession. 

The U.S. economy has since recovered all but 2.1 million of the more than 20 million jobs lost during the onset of the pandemic, grew by 5.8 percent in 2021 and powered consumer spending well above pre-pandemic levels. But the economy’s rapid rebound came with a spike in consumer prices. As vaccines and stimulus powered a surge in consumer demand, pandemic-driven supply constraints, labor shortages, manufacturing backlogs, shipping bottlenecks and shutdowns abroad pushed prices higher.  

Sylvan has more here.

WHAT IT MEANS

Here’s what the new hikes mean for you:

  • Higher borrowing costs for consumers: As banks face higher interest rates to lend to each other, they compensate by raising interest rates paid by their customers. Interest rates for credit cards, home equity lines of credit, automobile loans and other loan products are often set by taking the federal funds rate, adding several percentage points and adjusting for a borrower’s credit history. The higher the federal funds rate, the higher your personal interest rate. 
  • Less leverage for workers: “If a business wants to borrow to expand or to keep its operations going, you will have to pay a higher interest rate on those business loans,” said Derek Tang, co-founder of Monetary Policy analytics. “That will make businesses a little less likely to keep bidding up for labor…They might need to make a decision about how many people to hire and how much to pay them.”  
  • Less froth in financial markets: Higher borrowing costs for businesses also means narrower profit margins and higher standards for lenders. The ultra-low Fed funds rate through much of the past decade helped fuel a massive rally in the stock market, only briefly derailed by the COVID-19 pandemic. But expectations of higher rates have been among several factors behind the stock market correction that began this year. 

 

PAIN AT THE PUMP

Biden calls for companies to lower gas prices as oil prices dip 

President Biden called on companies to decrease gas prices Wednesday morning, stating that the cost at the pump should reflect the recent decrease in oil per barrel. 

“Oil prices are decreasing, gas prices should too. Last time oil was $96 a barrel, gas was $3.62 a gallon. Now it’s $4.31,” the president wrote in a tweet. “Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans.” 

  • Biden’s tweet comes the week after average U.S. gas prices reached the highest point ever recorded and crude oil prices reached a 14-year high. 
  • Gas prices gradually increased as the pandemic waned and shot up further after Russia invaded Ukraine and Biden banned Russian oil imports.  
  • Declines in gas prices, like with increases, typically lag oil prices, in part due to the time it takes for the new supply to pass through the supply chain. 

Patrick De Haan, head of petroleum analysis at GasBuddy, predicted on Twitter that the dip would likely translate to some relief for consumers in coming weeks, unless oil prices rally again.

The Hill’s Zack Budryk has more here. 

‘PROHIBITED MERGERS’

Democrats introduce bill to give federal antitrust enforcers power to block, break up mergers 

Sen. Elizabeth Warren (D-Mass.) and Rep. Mondaire Jones (D-N.Y.), introduced a bill Wednesday that would give federal antitrust enforcers greater power to block and break up mergers. 

The Prohibiting Anticompetitive Mergers Act would allow the Federal Trade Commission (FTC) and Department of Justice to reject large merger deals without a court order. It would also give the government power to retroactively break up deals that resulted in a market share above 50 percent or “materially harmed” competition, workers, consumers, or small or minority-owned businesses.  

  • The proposal is backed by a coalition of progressives in both chambers, including Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio Cortez (D-N.Y.), and follows a series of proposals introduced in Congress targeting the market power of tech giants.  
  • Several antitrust reform bills have made their way out of committee in the House and Senate, but none have passed a full chamber. The Warren and Jones proposal may also face a tough road ahead. The bill lacks any GOP sponsors, and it is also notably missing Sen. Amy Klobuchar (D-Minn.) and Rep. David Cicilline (D-R.I.), the chairs of the Senate and House antitrust panels, among the list of co-sponsors.  

Under the Warren and Jones proposal, a “prohibited merger” would include deals valued at more than $5 billion, deals resulting in market shares of more than 33 percent for sellers or 25 percent for employers, and deals resulting in highly concentrated markets under the 1992 agency guidelines. 

The Hill’s Rebecca Klar has more here.

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WORSE OFF

Putin says sanctions against Russia aimed at ‘worsening lives’ of millions of people 

Russian President Vladimir Putin on Wednesday spoke about Western sanctions against Moscow as Russian forces press on for a third week in the unprovoked invasion of Ukraine.  

“In effect, these steps are aimed at worsening the lives of millions of people,” Putin said of the sanctions.  

“One should clearly understand that the new set of sanctions and restrictions against us would have followed in any case, I want to emphasize this. Our military operation in Ukraine is just a pretext for the next sanctions,” he added, claiming that the West failed to conduct “an economic blitzkrieg” against his country. 

Russia has indeed faced severe economic consequences from Western sanctions, which have caused its currency to tank, prompted countless multinational companies to flee the country and brought Russia near a debt default.  

The Hill’s Monique Beals has more here.  

Good to Know

Lyft announced Wednesday that it will add a $0.55 fuel surcharge to the price of each ride starting next week in an effort to help its drivers offset rising fuel costs.  

The company told The Hill that the full amount will go directly to drivers. The move comes after Uber announced a similar fuel surcharge for rides starting Wednesday. 

Here’s what else we have our eye on: 

  • The Biden administration said that it would expand the amount of liquified natural gas that it exports, as Europe seeks to reduce its reliance on Russian gas. 
  • The Senate on Tuesday voted to nix a requirement to wear masks on public transportation as the country rolls back coronavirus rules and restrictions. 

 

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 Thursday.

Tags Amy Klobuchar Bernie Sanders Bill Cassidy Chris Sununu David Cicilline Elizabeth Warren Jahana Hayes Jared Polis Joe Biden Miguel Cardona Mondaire Jones Vladimir Putin

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