On The Money — Powell warns of deeper pain from rate hikes

The Fed hiked interest against and the risks of an economic downturn are rising. We’ll also look at Republican divides over spending, another dip in home sales and a small bump in gas prices.

But first, what to know about the New York attorney general’s lawsuit against former President Trump.

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.

Powell: Fed hikes will likely boost unemployment

Federal Reserve Chair Jerome Powell said Wednesday he expects the U.S. economy to slow under the weight of the central bank’s interest rate hikes to a point that could cause job losses.

Speaking after the Fed issued another rate hike, Powell said the U.S. may be able to avert a full-blown recession but could not avoid hardship as the bank ramps up its fight against inflation.

  • “If we want to light the way to another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Powell said.

  • “We certainly haven’t given up the idea that we can have a relatively modest increase in unemployment. Nonetheless, we need to complete this task,” he added.

The background: Powell addressed reporters after the Fed announced it would increase its baseline interest rate range by 0.75 percentage points, the fifth rate hike this year and third 75 basis point hike in three consecutive monetary policy meetings.

Fed officials also projected another 1.25 percentage points of rate hikes before the end of the year, which Powell said would push borrowing costs into a level meant to restrict the economy.

  • The Fed had hoped it could raise rates slowly and steadily enough to curb inflation without causing a sharp decline in the economy.  

  • But Powell acknowledged Wednesday it would be impossible to bring inflation down without slowing the economy enough to cause pain for many households.

“No one knows whether this process will lead to a recession or, if so, how significant that recession would be. That’s going to depend on how quickly wage and price inflation pressures come down,” Powell said.

Where we may be going: Fed officials expect the jobless rate to hit 4.4 percent in 2023 after edging up to 3.8 percent by the end of this year after several more interest rate hikes to close out 2022, according to projections released Wednesday. The unemployment rate was 3.7 percent in August.

SHUTDOWN THREAT

GOP faces internal rift on government spending

House and Senate conservatives are pressing for any stopgap funding measure to prevent a government shutdown to run through the beginning of next year, setting up an intraparty rift.

The conservatives want to delay any long-term funding decision until next year because it could give Republicans more leverage and input if the party wins back the House or Senate in November’s midterm elections.

  • The push is opposed by other Republicans, particularly appropriators, who say it could hurt funding for key GOP priorities such as defense. 

  • Congress must pass some kind of funding bill before Oct. 1 to prevent a shutdown.  

  • Conservative resistance to a short-term measure, known as a continuing resolution, is a complication a little more than a week before the deadline.

Aris and Emily Brooks explain here.

SALES SLOW

US home sales dip for seventh straight month

Existing home sales dipped 0.4 percent from July to August amid high mortgage rates, according to the National Association of Realtors (NAR), making it the seventh consecutive month of declining sales.

Sales are occurring at the slowest pace since June 2020, with year-over-year sales dropping by 19.9 percent.

  • The median home price dipped for the second straight month from the record high in June, but prices are still up 7.7 percent from the same period last year. 

  • Prices remain high due to a limited supply of homes. Total housing inventory stood at 1.28 million at the end of August, a 1.5 percent decrease from July.

Karl has more here.

UP AT THE PUMP

Gas prices rise slightly after months of declines

The national average price of gasoline rose slightly Wednesday, ending a streak of months of decline after soaring to its highest levels ever over the summer.

  • AAA reported the average gas price on Wednesday is $3.681 per gallon, up from Tuesday’s average of $3.674.  

  • That’s a reversal from the recent trend of prices consistently dropping since the average peaked above $5 per gallon in June.

White House assistant press secretary Abdullah Hasan said Wednesday that relief should be coming, as wholesale gas prices have declined by 18 percent in the last month.

The Hill’s Jared Gans has more here.

Good to Know

President Biden, rail workers unions and railroads avoided a nationwide shut down last week that would have devastated an already ailing U.S. economy.

But business groups argue that there is more to be done to address poor rail service, which they say has magnified red-hot inflation. Retailers, farmers, carmakers and other rail customers are lobbying Congress to pass legislation that aims to cut down on chronic disruptions.

Here’s what else we have our eye on:

  • The House passed a bill that allows spouses who combined their student debts under a federal program to split their loans, sending the legislation to President Biden’s desk.

  • Additional Senate Democrats have come out in opposition of Sen. Joe Manchin’s (D-W.Va.) push to change the approval process for energy projects.

  • President Biden will announce nearly $3 billion in new U.S. commitments to address global food insecurity, an issue that has been worsened by Russia’s invasion of Ukraine.

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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