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On The Money – Fed Begins Raising Rates As Prices Rise

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

Today’s big deal: The Federal Reserve launched a series of interest rate hikes on Wednesday and we’ll tell you what that means for your budget. We will also see how President BidenJoe BidenRepublican senators introduce bill to ban Russian uranium imports responds to a sharp drop in oil prices and a Democratic effort to give regulators more power to block mergers.

For The Hill, we are Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Contact us at [email protected] or @SylvanLane[email protected] or @ArisFolley and [email protected] or @KarlMEvers.

Let’s go.

Fed raises interest rates to fight record inflation

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

  • The Federal Open Market Committee (FOMC), the panel of Fed officials responsible for setting monetary policy, raised the federal funds rate by 0.25 percentage points to a range of 0.25 to 0, 5%.
  • The FOMC also forecast about six more rate hikes this year, along with slowing growth and rising inflation.

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

The U.S. economy has since recovered nearly 2.1 million of the more than 20 million jobs lost at the start of the pandemic, grew 5.8% in 2021 and propelled consumer spending well above record lows. before the pandemic. But the rapid rebound in the economy has been accompanied by soaring consumer prices. As vaccines and stimulus fueled increased consumer demand, pandemic-related supply constraints, labor shortages, manufacturing delays, shipping bottlenecks and overseas shutdowns have pushed prices up.

Sylvan has more here.

WHAT THIS 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 the interest rates paid by their customers. Interest rates for credit cards, home equity lines of credit, auto loans and other loan products are often set by taking the federal funds rate, adding several percentage points and taking into account 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 grow or continue operations, you’ll have to pay a higher interest rate on those business loans,” said Derek Tang, co-founder of monetary policy analysis. “It will make businesses a little less likely to continue bidding for labor…They may have to make a decision on how many people to hire and how much to pay them.”
  • Less foam in the financial markets: Higher borrowing costs for businesses also mean tighter profit margins and higher standards for lenders. The ultra-low federal funds rate for much of the past decade helped fuel a massive stock market rally, which was only briefly derailed by the COVID-19 pandemic. But higher rate expectations were among several factors behind the stock market correction that began this year.

PAIN AT THE PUMP

Biden calls on companies to lower gas prices as oil prices fall

President Biden called on businesses to lower gasoline prices Wednesday morning, saying the cost at the pump should reflect the recent drop in oil per barrel.

“Oil prices go down, gasoline prices should too. The last time oil was at $96 a barrel, gas was at $3.62 a gallon. Now it’s $4.31,” the president wrote in a tweet. “Oil and gas companies should not increase their profits at the expense of American workers.”

  • Biden’s tweet comes the week after average U.S. gas prices hit an all-time high and crude oil prices hit a 14-year high.
  • Gas prices gradually rose as the pandemic waned and rose further after Russia invaded Ukraine and Biden banned imports of Russian oil.
  • Gas price declines, like increases, typically lag oil prices, in part due to the time it takes for new supply to move through the supply chain.

Patrick De Haan, head of oil analysis at GasBuddy, predicted on Twitter that the drop will likely mean some relief for consumers in the coming weeks unless oil prices pick up again.

Zack Budryk of The Hill see you here.

“PROHIBITED MERGERS”

Democrats introduce bill to give federal antitrust authorities power to block and break up mergers

Sen. Elizabeth WarrenElizabeth WarrenThe Hill’s Morning Report – Presented by Facebook – What now after Zelensky’s speech? Senate Panel Moves Biden Fed Nominees Forward On The Money Confirmation Votes – Fed Begins Raising Rates As Prices Rise MORE (D-Mass.) and Rep. Mondary JonesMondaire JonesOn the money – Fed starts raising rates as prices soar Democrats urge DOJ to deal with ‘insider threats’ from candidates who deny 2020 results (DN.Y.), on Wednesday introduced a bill that would give federal antitrust authorities greater power to block and break up mergers.

The law prohibiting anticompetitive mergers would allow the Federal Trade Commission (FTC) and the Department of Justice to reject large mergers without a court order. It would also give the government the power to retroactively break deals that have resulted in a market share above 50% or competition, workers, consumers or small businesses or minorities.

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

Rebecca Klar from The Hill has more here.

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WORSE

Putin Says Russia Sanctions Aim to ‘Make Lives Worse’ for Millions

Russian President Vladimir PoutineVladimir Vladimirovich PutinRepublican Senators Introduce Bill to Ban Russian Uranium Imports Hillicon Valley—Invasion Complicates Social Media Politics Defense and National Security—Blinken Details Russia’s Possible Next Steps MORE Wednesday discussed Western sanctions against Moscow as Russian forces continue their unprovoked invasion of Ukraine for a third week.

“Indeed, these measures are aimed at aggravating the lives of millions of people,” Putin said of the sanctions.

“It should be clearly understood that the new set of sanctions and restrictions against us would have followed anyway, I want to stress that. Our military operation in Ukraine is only a pretext for the next sanctions,” he added, asserting that the West has not waged “an economic blitzkrieg” against his country.

Russia has indeed faced serious economic consequences from Western sanctions, which have caused its currency to plummet, prompted countless multinational corporations to flee the country and brought Russia to the brink of default.

Monique Beals from The Hill has more here.

Good to know

Lyft announced Wednesday that it will add a $0.55 fuel surcharge priced for each trip starting next week in a bid 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 from Wednesday.

Here’s what else we’ve got our eyes on:

  • The Biden administration has said it increase the amount of liquefied natural gas that it exports, while Europe seeks to reduce its dependence on Russian gas.
  • The Senate voted on Tuesday no requirement to wear masks on public transport as the country rolls back coronavirus rules and restrictions.

That’s all for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. See you Thursday.