On The Money — Fed on track to ramp up rates

·5 min read

Higher borrowing costs and a slower economy are likely on the way as the Fed fights inflation. We’ll also look at a Senate grilling on Russia sanctions and frustrations building over must-pass funding bill.

🎄 But first, the Queen of Christmas’ never-before-released 1995 grunge album could soon see the light of day.

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

Fed set to accelerate fight against inflation

The Federal Reserve’s fight against rising prices will accelerate Wednesday when the central bank issues another steep interest rate hike meant to quell stubborn inflation.

The Federal Open Market Committee, the panel of Fed officials responsible for setting monetary policy, is on track to raise its baseline interest rate range at the end of a two-day meeting in Washington this week.

  • While nothing is set in stone, Fed leaders have all but confirmed they will issue another 0.75 percentage point rate hike. That would be the third increase of that size, which Fed Chairman Jerome Powell called “unusually large,” in three consecutive meetings.  

  • Economists and investors are hopeful the Fed will be able to pivot to slower, smaller rate increases after another large September hike. But the Fed has seen little progress so far in cooling inflation.

The economy has shown some signs of slowing down under the weight of higher interest rates and as the shock to energy markets unleashed by the war in Ukraine has dissipated.

Gas prices continued to plunge from peaks set in June, supply chains have been running smoother and the weight of rising mortgage payments has slowed the housing market.

Even so, prices still rose 0.1 percent in August, according to the Labor Department’s consumer price index, led by troubling increases in the costs of shelter, medical services, transportation and food.

Sylvan breaks it down here.

LEADING THE DAY

Senators grill Treasury officials over effectiveness of sweeping Russian sanctions

Treasury and Justice department officials defended the effectiveness of wide-ranging U.S. sanctions placed on Russia following the country’s invasion of Ukraine despite indications that Russia’s economic pivot toward Asia has buoyed the country.

Officials told the Senate Banking Committee Tuesday that Western sanctions have siphoned money away from the Russian war effort and helped Ukraine achieve significant military gains, like the 8,000 square kilometers wrested back from Russian control in recent weeks.

“The sanctions that the United States and over 30 countries have put in place alongside export controls have had a powerful economic effect in achieving our goal, depriving Russia of revenue and of military equipment to wage its brutal war,” Elizabeth Rosenberg, assistant secretary for terrorist financing and financial crimes in the Treasury Department, told the committee on Tuesday.

“Half of Russia’s foreign exchange reserves have been locked up. Russia has been forced to resort to draconian capital controls. It is burning through its fiscal buffers, heading toward fiscal deficit by the end of the year,” she said.

The Hill’s Tobias Burns takes us there.

PERMITTING POLITICS

Manchin decries ‘revenge politics’ amid GOP resistance to permitting effort

Sen. Joe Manchin (D-W.Va.) condemned what he described as “revenge politics” as many Republicans have resisted his efforts to speed up the approval process for energy projects.

“It’s like the revenge politics, basically revenge towards one person: me. And I’m thinking, ‘this is not about me,’ ” he told reporters on Tuesday.

Republicans have long complained that the approval process for energy and infrastructure projects has been too lengthy and stalled important projects.

But they felt spurned after Manchin backed Democrats’ climate and tax bill, and some GOP lawmakers say Manchin’s changes may not go far enough.

Rachel Frazin has more here.

RATE FORECAST

Interest rates forecasted to peak at 4.26 percent in March: CNBC survey

Economic analysts expect interest rates to peak at 4.26 percent in March as the Federal Reserve raises rates to combat high inflation, according to a CNBC survey released Tuesday.

The September CNBC Fed Survey found that most respondents expect the Fed to raise interest rates to a high level and keep them there for an extended period. The average respondent expects the Fed will raise interest rates by 0.75 percentage points for the third straight meeting in an attempt to reduce prices and cool off the economy.

  • Most respondents are concerned about the Fed going too far; 57 percent said the Fed will raise rates too much and cause a recession. Only 26 percent said the Fed will tighten economic growth the right amount and only cause a modest slowing of the economy.  

  • Fed Chair Jerome Powell has indicated that the U.S. central bank is willing to take the necessary steps to get inflation down to its target goal of 2 percent, recognizing the moves could bring “pain” to households and businesses.

The Hill’s Jared Gans has the details here.

Good to Know

Sen. Elizabeth Warren (D-Mass.) on Tuesday sounded the alarms on the potential of Russian elites using cryptocurrency “mixers” as a way of avoiding U.S. sanctions placed on the country and many of its oligarchs in the wake of the Kremlin’s invasion of Ukraine.

Here’s what else we have our eye on:

  • The Department of Justice charged 47 people on Tuesday for defrauding a federal meal program for children from low income families of $250 million during the COVID-19 pandemic

  • Amazon and several hotel chains are among dozens of companies that are pledging to hire more than 20,000 refugees fleeing conflict and persecution around the world.

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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