U.S. Economy Updates: Powell Advises Taking GDP Data With 'Grain of Salt'

Live Updates
  • The Federal Reserve raised its benchmark interest rate by another three-quarters of a percentage point Wednesday in a bid to battle rising inflation.
  • This is the Fed's fourth rate hike since March of this year.
  • In June, year-on-year consumer prices jumped 9.1 percent in the U.S. and 9.6 percent in the European Union.
  • Polls suggest inflation is the top issue for voters right now, with prices for food, gas and other goods increasing faster than in 40 years.
  • Fed Chairman Jerome Powell held a press conference following the rate hike announcement. He said he does not believe the U.S. is in a recession.
Jerome Powell at Presser
Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board building in Washington, Wednesday, July 27, 2022. Manuel Balce Ceneta/AP Photo

Live Updates Have Ended.

Powell Advises Taking GDP Data With 'Grain of Salt'

Federal Reserve Chair Jerome Powell said Wednesday that the Federal Reserve will review the new GDP report when it is released on Thursday but won't use it to draw any conclusions about whether the U.S. is entering a recession.

Powell's comments came during a Wednesday afternoon press conference, during which he discussed the Federal Reserve's latest decision to increase interest rates by three-quarters of a percentage point. Powell told reporters he does not think the U.S. is "currently" dealing with a recession.

The GDP report for the second quarter will be released on Thursday. Though Powell said officials will review the data it contains "very carefully," he said that data will not inspire a recession declaration from the Federal Reserve.

"The Fed doesn't make a judgement on that," Powell said. "We're focused on the dual mandate, and using our tools to achieve maximum employment and price stability. We don't say, 'There is now a recession,' that kind of thing."

Powell said the Federal Reserve will "draw whatever implications we can" from the new GDP data but reiterated he does not believe the U.S. is in a recession. He described a recession as "a broad-based decline across many industries that's sustained for more than a couple of months" and said the country's current economic situation "doesn't seem like that."

"The labor market is just sending such a strong signal of economic strength that it makes you really question the GDP data," Powell said, adding that initial data included in GDP reports are often later revised.

"You tend to take first GDP reports I think with a grain of salt, but of course it's something we'll be looking at," he said, according to CNBC.

Manchin, Schumer Reach Deal on Inflation Legislation

American lawmakers are trying to help ease costs of inflation with a new piece of legislation called the Inflation Reduction Act of 2022.

Senator Joe Manchin, a West Virginia Democrat, announced he reached a deal with Senate Majority Leader Chuck Schumer on Wednesday, resulting in Manchin's support for the bill.

"We must be honest about the economic reality America now faces," Manchin tweeted Wednesday afternoon. "That's why I'm proud to support the Inflation Reduction Act of 2022, which will address record inflation by paying down our national debt, and by lowering energy & healthcare costs."

In a statement released by Manchin's office, the senator said he decided to support the legislation "because it provides a responsible path forward that is laser focused on solving our nation's major economic, energy and climate problems."

The legislation "will make a historic down payment on deficit reduction to fight inflation," according to a one-sheet shared by Senate Democrats. It will also "invest in domestic energy production and manufacturing," set a 2030 goal for reducing carbon emissions by about 40 percent, and enable Medicare "to negotiate for prescription drug prices and extend the expanded Affordable Care Act program" for a few more years.

Home Prices Increased 80 Percent in Last 3 Years

Purchasing a home in the U.S. is "about 80 percent more expensive" now than it was three years ago, according to the National Association of Realtors (NAR).

A Wednesday news release from the NAR provided an update on the extent to which pending home sales declined in June and contrasted some of the pricing and demand variables with those recorded in June 2019.

According to the NAR, "Nearly a quarter of buyers who purchased a home three years ago would be unable to do so now because they no longer earn the qualifying income to buy a median-priced home today."

Following a "slight increase" at the end of the spring season, pending home sales dropped 8.6 percent in June, with the largest decline reported in the Western U.S., the NAR said. The association attributed the country's overall decline of in-progress home sales to high mortgage rates and elevated home purchase costs.

The NAR predicted that home sales this year overall will drop by 13 percent but said the expected stabilization of mortgage rates could bring home sales back up next year.

NAR Chief Economist Lawrence Yun said in the release that mortgage rates "may be topping or very close to a cyclical high" this month. If that happens, "pending contracts should also begin to stabilize," Yun said.

Housing Prices in These Cities Most at Risk in Recession

Areas where housing prices surged during the coronavirus pandemic are especially vulnerable to a potential housing downturn if a recession takes hold in the U.S., according to a Redfin report released this week.

The real estate brokerage company identified Riverside, a metro area in southern California, as the location most at risk if the U.S. slips into a recession.

Federal Reserve Chair Jerome Powell said on Wednesday he does "not think" the U.S. is "currently in a recession." Fears of a possible recession have been rising in recent months as the U.S. battled its highest inflation levels in decades and ongoing supply chain issues, the latter of which started as a result of pandemic-related shutdowns and delays.

Despite concerns about a possible recession, Redfin Senior Economist Sheharyar Bokhari said the impact on the housing market if one occurs is "unlikely" to be as significant as the one experienced during the Great Recession due to the different variables at play.

Many cities saw home prices jump over the last two years, a result of Americans moving during the pandemic and of rising inflation. High mortgage rates and a natural deceleration after the highs reached during the pandemic then led the housing market to slow "considerably" in the first half of 2022, according to Redfin.

"Popular" areas that have experienced sizable home price increases "are most likely to see the effects of a housing downturn amplified and home prices decline year over year if the economy goes into a recession," the report said.

After assessing 98 metro areas in the U.S., Redfin said Riverside was most at risk of seeing home prices stumble in a recession because it became a "hot destination" for both second-home buyers and relocating Americans. Boise, Idaho was ranked second, followed by Cape Coral, Florida. Boise and Cape Coral were also included on a May list of metro areas with the "fastest-cooling markets," which Redfin said was "an indicator that prices are more likely to drop in many of those metros as the economy continues to contract."

Meanwhile, Redfin said Akron, Ohio had the "lowest chance of a housing downturn" if a recession occurs. In Pennsylvania, Philadelphia and Montgomery County had the second- and third-lowest risk levels, respectively.

Home for sale in Florida
A 'for sale' sign hangs in front of a home on June 21, 2022 in Miami, Florida. Joe Raedle/Getty Images

Powell Says 2021 Fed Actions Did Not Matter in the End

Fed Chair Jerome Powell said raising interest rates earlier would not have ultimately changed current inflation.

During a press conference Wednesday after raising the interest rate, a reporter asked Powell if he thought the Fed was too late to react to inflation back in Dec. 2021.

While he doesn't think the Fed's action made much of an impact on inflation, Powell said he would not do it again.

"I don't think that has materially changed the situation," he said. "But I have to admit, I wouldn't do that again."

Powell said the situation evolved in a "highly unexpected way for all of us."

"Maybe the learning is that we have a little more flexibility," he added.

Ultimately, Powell said he does not think it would have mattered if the Fed began raising interest rates three months earlier.

"Did it matter in the end? I really don't think it did," he said. "Lot of central banks were raising rates three moths earlier and it didn't matter. This is a global phenomenon happening now."

Chipotle, McDonald's Patrons Are Choosing Cheaper Items

Fast food chains are feeling the impact of continued inflation pressures.

McDonald's and Chipotle Mexican Grill said costumers are choosing cheaper menu items and visiting their restaurants less often, CNBC reported.

Chipotle said low-income customers were visiting its establishments less frequently starting around mid-May.

"The low-income consumer definitely has pulled back their purchase frequency," Chipotle CEO Brian Niccol said on the company's conference call with analysts Tuesday. "Fortunately for Chipotle, you know, the majority of our customers are a higher household income consumer."

The chain plans to raise prices about four percent in August to cover rising costs for tortillas, avocados and packaging, the outlet reported.

McDonald's said some low-income customers are switching to value menu items or are not choosing combo meals to save money.

But there is some benefit for McDonalds amid inflation. Customers are opting for fast food chains over more expensive full-service of fast-casual restaurants.

Restaurant menu prices have risen an average of seven percent this year compared with the same three-month period last year, according to the NPD Group. During the same time, household with income under $75,000 cut their visits to fast-food restaurants by six percent.

There is a gap, however, between the rise in grocery and restaurant prices, McDonald's chief executive Chris Kempczinski said.

Grocery prices climbed about 12 percent over the last 12 months, while prices for food outside of the home are up only about 7.7 percent, according to the Bureau of Labor Statistics' consumer price index.

"I don't know what the impact of that is, but certainly we expect that there's some benefit that we're seeing as part of that," Kempczinski told analysts during the company's conference call.

Powell Says Price Stability is Key to Working Economy

Fed Chair Jerome Powell spoke directly to American households struggling with inflated prices at the grocery store and the gas pump.

"The first thing I would say to every household is that we know inflation is too high," he said during a press conference Wednesday. "We understand how painful it is, particularly for people who are living paycheck to paycheck and who spend most of that paycheck on necessities such as food, gas, heating their homes and clothing. We know that those people suffer the most."

While higher-income people have more resources to "absorb" the high costs of inflation, many people don't have those resources, Powell said.

It is the job and institutional role of the Federal Reserve to provide price stability to the American people.

"There will be will be some softening in labor market conditions," Powell said. "We need growth to slow to below potential growth. We don't want this to be bigger than it needs to be."

Powell said that in the long term, price stability will make the whole economy work.

"It will give us a strong labor market and wages that aren't being eaten up by high inflation," he said.

People making low wages are the ones suffering the most from inflation, he added.

"That's all the more reason we need to move on this," Powell said.

Bringing Inflation Down Is Fed's 'Overarching Focus'

The Federal Reserve's "overarching focus" is to bring inflation under control, Federal Reserve Chair Jerome Powell said on Wednesday.

During a Wednesday afternoon news conference, Powell explained what led to the Federal Open Market Committee's (FOMC) Wednesday decision to raise interest rates by another three-quarters of a percentage point. The decision marks the second time in a row that the FOMC has raised rates by that much, and the fourth time it has raised rates in an effort to combat inflation since March.

What Federal Reserve Considered Before Rate Hike

The labor market has been "robust" with low unemployment, the Federal Reserve said in a Wednesday statement. The U.S. unemployment rate is "near a 50-year low," while job openings are "near historical highs" and wage growth has been "elevated," Powell told reporters.

Even so, the Federal Reserve said there are ongoing "imbalances" between supply and demand, with high food and energy prices also contributing to high inflation. Russia's war with Ukraine is also "causing tremendous human and economic hardship," the Federal Reserve added.

"The current picture is plain to see," Powell said. "The labor market is extremely tight, and inflation is much too high." He identified these elements as the "backdrop" to the Federal Reserve's Wednesday decision to again raise interest rates.

What the Federal Reserve Will Do Next

Powell said it is possible the Federal Reserve will implement additional large interest hikes in the months ahead, though he said those decisions have not yet been made and will depend upon how the economy responds to the latest rate hike. In the next few months, the Federal Reserve will assess that data and "will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to two percent."

"We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate," he said. "The pace of those increases will continue to depend on incoming data and evolving outlook for the economy."

As the strategies the Federal Reserve has adopted thus far continue to take effect, Powell said "it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation."

"Our overarching focus is using our tools to bring demand into better balance with supply in order to bring inflation back down to our two percent goal and to keep longer-term inflation expectations well-anchored," he said.

U.S. Not Currently in a Recession, Fed Chair Says

Federal Reserve Chairman Jerome Powell said he does not think the United States is in a recession.

"I do not think the U.S. is currently in a recession," he said during a press conference Wednesday. "There are just too many areas of the economy that are performing too well."

Powell pointed to a "strong" labor market, noting low unemployment, strong wage measures and more people entering the workforce.

He also noted that economic growth is expected to slow this year after high growth during the post-COVID reopening period in 2021.

"It does not make sense that the economy is in a recession," he said.

Jerome Powell Rate Hike
Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, DC, on July 27, 2022. - The US Federal Reserve on July 27 again raised the benchmark interest rate by three-quarters of a percentage point in its ongoing battle to tamp down raging price pressures that are squeezing American families. MANDEL NGAN/AFP via Getty Images

Powell Says Another 'Unusually Large Increase' Possible

The Federal Reserve may implement "another unusually large increase" in interest rates in the coming months, Federal Reserve Chair Jerome Powell said Wednesday.

Powell commented on the possibility of another large rate increase as he discussed the Federal Open Market Committee's (FOMC) latest rate hike. For the second month in a row, the FOMC has raised interest rates by three-quarters of a point, a move aimed at combatting high inflation. Powell's announcement on Wednesday marked the fourth time the Federal Reserve has raised interest rates since March.

A statement released by the Federal Reserve earlier Wednesday said the FOMC "anticipates that ongoing increases in the target range will be appropriate." Powell also mentioned this possibility during a Wednesday afternoon press conference.

"Today's increase in the target range is the second 75 base point increase in as many meetings," Powell said. "While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then."

Powell said the Federal Reserve will make decisions moving forward "meeting by meeting" and said it will "communicate our thinking as clearly as possible."

WATCH: Fed Chair Jerome Powell Holds Press Conference

Federal Reserve Chairman Jerome Powell is holding a press conference after the Fed just announced it will raise interest rates by another three-quarters of a percentage point.

Watch live here:

Fed Releases Statement Following Rate Hike

The Federal Reserve said "ongoing increases" may be necessary moving forward in a statement addressing its latest interest rate hike Wednesday afternoon.

Inflation "remains elevated," the Federal Reserve said, a result of supply chain strains during the pandemic and high prices of food, gas and energy.

Russia's war with Ukraine is also contributing to inflation levels in the U.S. and around the world. The Federal Reserve said the war is "causing tremendous human and economic hardship," increasing inflation and "weighing on global economic activity."

The Federal Open Market Committee (FOMC) is aiming for "maximum employment" and trying to get the inflation rate back down to 2 percent over time.

"In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate," the Federal Reserve's statement said. It added that the FOMC "is strongly committed to returning inflation to its 2 percent objective."

The Federal Reserve's statement went on to say it will continue to assess the economic situation to determine what additional steps to take.

Fed Raises Interest Rates Again

The Federal Reserve has raised interest rates another three-quarters of a percentage point in an effort to curb inflation.

After a meeting Wednesday, the Fed announced the second consecutive three-quarters of a point hike in its benchmark interest rate.

This will be the Fed's fourth rate increase this year.

Fed Chairman Jerome Powell will give a press briefing soon to discuss the new interest rate hike.

This comes as inflation jumped 9.1 percent in June from a year ago, the highest since 1981.

Fed to Announce Rate Decision Soon

The Federal Reserve is set to announce their latest interest rate policy today, amid continued inflation.

Financial experts expect the Fed to raise interest rates once again.

After its two-day meeting, the Fed will likely to impose a second three-quarter-point hike in its benchmark interest rate. This will raise the range to 2.25 percent to 2.5 percent.

This would be the Fed's fourth rate increase since March. A rate hike will make it more expensive for U.S. consumers to take out a mortgage or a car or business loan.

The announcement to expected to come at 2 p.m. Fed Chair Jerome Powell will hold a press conference after the meeting around 2:30 p.m.

This comes ahead of the release of the government estimates for the gross domestic product for April-June. Some economists believe this figure will show a shrinking economy and mark the beginning of a recession.

The press briefing will stream live on C-SPAN as well as the Fed website and YouTube channel.

Food Prices 23 Percent Higher Than Last Summer

International food prices assessed for the Food and Agriculture Organization's (FAO) monthly Food Price Index showed prices are dropping but still high above costs recorded at this time last year.

The FAO's latest report showed food prices dropped for the third month in a row in June, but were still 23 percent above food prices in June 2021.

The June decline was the result of dropping prices of vegetable oil, sugar and cereal, the FAO said. However, the organization said there were increases in dairy and meat prices.

While wheat prices dropped in June, prices were still 48.5 percent above those recorded in June 2021. The price drop between May and June of this year was the result of "seasonal availability from new harvests in the northern hemisphere, improved crop conditions in some major producing countries, and higher production prospects in the Russian Federation," the FAO said. Declining wheat prices contributed to the FAO Cereal Price Index dropping 4.1 percent from May to June.

Vegetable oil and sugar prices also dipped in June, with the FAO Sugar Price Index dropping to its lowest amount in four months. Meanwhile, the FAO Meat Price Index set "a new record high" in June, with prices nearly 13 percent higher than the same time last year. Prices also increased across the board for all dairy products, the report said.

Despite the overall food price drop in June, FAO Chief Economist Máximo Torero Cullen said prices were still "close to the all-time high" set in March.

"The factors that drove global prices high in the first place are still at play, especially a strong global demand, adverse weather in some major countries, high production and transportation costs, and supply chain disruptions due to COVID-19, compounded by the uncertainties stemming from the ongoing war in Ukraine," Cullen said.

FAO Food Price Index for June 2022
A customer shops in a Kroger grocery store on July 15, 2022 in Houston, Texas. Brandon Bell/Getty Images

U.S. Drivers Drive and Dine Out Less Amid High Prices

Many American drivers have changed their driving and lifestyle habits in response to high gas prices, a recent American Automobile Association (AAA) survey found.

Gas prices have been on the rise since Russia's war with Ukraine began in late February. Since March, 64 percent of American drivers told AAA they made lifestyle changes, including the time they spent driving, to combat high prices. Twenty-three percent of adult drivers told AAA they had made "major changes" to offset rising gas prices.

The three most common changes drivers reported making were "driving less, combining errands and reducing shopping or dining out," according to AAA.

Of the 64 percent of drivers who said they had made changes, most—88 percent—said they were driving less, and 74 percent said they were strategically combining errands. More than half—56 percent—said they were limiting their shopping or dining out less. Nearly one in three drivers said they were postponing large purchases or vacations, and about one in four said they weren't putting as much money away for savings.

About16 percent of drivers said they were carpooling to offset high prices, and 13 percent reported transitioning to a fuel-efficient vehicle. Increased use of public transportation or electric vehicles were reported by less than 10 percent of survey respondents.

In a news release addressing the survey results, AAA said another survey conducted in March found more than half of American drivers said they intended to change how much they drove if gas prices climbed above $4 per gallon. The national average gas price on Wednesday was $4.30, more than 70 cents lower than the new national average record price of $5.02 recorded last month.

Inflation Hits NYC Bodegas

Inflation is hitting a New York City staple: the bodega bacon egg and cheese.

"Bacon, egg and cheese -- you can't take that sandwich away," Francisco Marte, a Bronx bodega owner told the Associated Press. "That's the favorite sandwich for the New Yorkers."

Marte said the price of everything has gone up, from water to chips. This includes the price of key ingredients for the famous sandwich. This has lead to an increase in the price of a bacon, egg and cheese from $2.50 to $4.50.

Bodegas, Marte said, is an essential institution for food and supplies in New York City neighborhoods.

Inflation climbed to 11.3 percent at the wholesale level in June, the U.S. Department of Labor reported. Since last June, producer prices have surged nearly 18 percent for goods and nearly eight percent for services.

Usually the supply chain can handle disruptions, but Katie Denis, a spokesperson with the Consumer Brands Association, said that right now, "there's just no slack."

Average Cost of Gas Dips to $4.30 As Prices Fall

The national average cost of a gallon of regular unleaded gas dropped to $4.30 on Wednesday, continuing the gradual fall in prices over the last several weeks across the U.S.

Wednesday's average cost marked a 2-cent dip from Tuesday and a nearly 17-cent drop from this time last week. The national average price one month ago was nearly $5.

Six states still have statewide average gas prices above $5, with California in the lead at $5.68 per gallon. Washington's statewide average gas price hovered just above $5 at about $5.09 per gallon.

On Wednesday, Texas was the state with the least expensive gas, with statewide average prices at $3.80 per gallon.

Below are the states with the highest and lowest statewide average gas prices.

Highest Statewide Average Gas Prices

  1. California: $5.69
  2. Hawaii: $5.49
  3. Alaska: $5.20
  4. Oregon: $5.13
  5. Nevada: $5.12

Lowest Statewide Average Gas Prices

  1. Texas: $3.81
  2. South Carolina: $3.82
  3. Georgia: $3.85
  4. Mississippi: $3.86
  5. Tennessee: $3.88
Gas prices in California
Gas prices are listed at a gas station in Rosemead, California on July 19, 2022. FREDERIC J. BROWN/AFP via Getty Images

Families to Spend More on Back-to-School Supplies

High inflation will impact families as they shop for back-to-school supplies this year.

House Republicans report that families will spend over $600 per students for back to school supplies because of "Biden inflation."

Deloitte's 2022 back-to-school survey found that families will spend an average of $661 per child on back-to-school shopping.

That is reportedly up 8 percent from last year and up 27 percent from 2019.

"It's not that people are really buying more, it's just the costs have truly changed in the past year, based on our survey," Alex Vaz, senior manager for Deloitte & Touche LLP, told Fortune.

Clothing costs are up an average of 18 percent and school supplies cost seven percent more than in 2021.

The National Retail Federation, a retail trade group, estimates American shoppers will spend $37 billion this back-to-school season. They estimate each household will spend an average of $864. This is about $168 more than families spend on average in 2019.

"When will President Biden & House Democrats learn their reckless spending is costing Americans?" House GOP leaders said in a tweet.

Experts Say Fed Was Too Slow in Response to Inflation, Report

The Federal Reserve waited too long to take action amid early inflation reports, economists and former policymakers told CNBC.

According to CNBC, the Fed made several mistakes that led to the inflation we are seeing today.

First, there was a sharp increase in the money supply. It takes time for that money to materialize in the real world. And as prices kept going up, the Fed added to the money supply by printing and issuing bonds that the market didn't need, experts said. This brought about record-high inflation.

Additionally, the Fed was raising interest rates at too slow a pace. Rate hikes were not made until March 2022.

"The forward guidance, overall, slowed the response to the Fed to the inflation problem" former Federal Reserve Chair Ben Bernanke told CNBC.

The initial response to inflation was also much too delayed, experts also told CNBC. There were early signs of inflation known to the Fed months before the Bank took action. This includes increased fuel and used car prices back in Nov. 2021. The Fed kept interest rates near zero and was buying large amounts of bonds.

At the time, Federal Reserve Chairman Jerome Powell called inflation "transitory" and expected it would not last long. Treasury Secretary Janet Yellen told senators last month that she and Powell should have used a different, more accurate term.

"Both of us could have probably used a better word than 'transitory,'" Yellen said when asked about their remarks about inflation last year and their slow response to price pressures.

The fiscal and monetary policy of the federal government during the height of the COVID-19 pandemic in 2020 also contributed to the current inflation rates.

Taxation and spending policy and the stimulus coming out of the pandemic put more money in people's pockets. But this high demand for good outpaced the supply of goods.

Tips to Protect Your Money Right Now: Experts

FE Cover Recession Proof BANNER

With inflation being its highest in more than four decades, it could be wise to do more to protect your money, analysts suggest. Here are some tips.

  1. Sooth Your Pain Points: Use hacks to save across the areas that prove to be your main financial headaches, such as groceries and gas. For example, gas station trackers such as GasBuddy identify the lowest local pump prices
  2. Stay in The Game: If you have stocks, don't sell them now when things are going badly – instead wait until they rebound
  3. Pump Up Your Savings: It is important to tuck away whatever you can in case the economy falls into recession
  4. Warm Up Your Network: It is worth taking steps to make your current job more secure while positioning yourself in a better place to find new work
  5. Cultivate Your Inner Zen: It is easy to be anxious about the economy right now, but it is out of your control. Looking after your mental health means that you are more likely to make smarter financial decisions

Raising Interest Rates 'Terrible Mistake': Robert Reich

Elizabeth Warren is not the only progressive to express concern about the Fed's strategy of increasing interest rates.

Robert Reich, labor secretary from 1993 to 1997 under Bill Clinton, says the Fed has assumed inflation is being driven by wage increases.

But higher prices have not been driven by wage rises, COVID financial support, he says. Instead "inflation is being driven in large part by record corporate profits."

"They're using the spectre of inflation as a cover," he said in a social media video on Tuesday.

Elizabeth Warren: Rate Hikes Could Cause 'Devastating Recession'

Supreme Court Has Lost Legitimacy: Warren
U.S. Senator Elizabeth Warren questions Jerome Powell, Chairman, Board of Governors of the Federal Reserve System as he testifies before the Senate Banking, Housing, and Urban Affairs Committee on June 22 in Washington, DC. Win McNamee

Senator Elizabeth Warren has criticized Federal Reserve Chair Jerome Powell for "aggressive" interest rate hikes that could trigger "a devastating recession."

Warren made the comments in a Wall Street Journal op-ed on Sunday.

"With Mr. Powell expected to announce another round of aggressive interest-rate hikes, the Fed risks triggering a devastating recession," Warren wrote.

The bank is undertaking its sharpest bout of policy tightening in decades, in a move to stave of soaring inflation, spurred by high post-pandemic demand, delays and labor shortages, and the Ukraine war.

"As with any illness, the right medicine starts with the right diagnosis," Warren added. "Unfortunately, the Fed has seized on aggressive rate hikes—a big dose of the only medicine at its disposal—even though they are largely ineffective against many of the underlying causes of this inflationary spike."

How Will the Markets Interpret the Fed Meeting?

Many analysts will be closely watching how the markets interpret Wednesday's Federal Reserve meeting.

The Fed is widely expected to raise the target range for the Fed funds rate by 0.75 percentage points to between 2.25 and 2.5 percent.

Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, points out on Twitter that, according to Bloomberg data, the market is betting the funds rate will peak at 3.4 percent and rate cuts will occur in 2023.

However, only a month ago, the funds rate was predicted to peak at 3.6 percent and that cuts would occur later.

What Will Higher Interest Rates Mean for Americans?

As we've been hearing, the Fed is expected to raise interest rates later.

The goal is to help bring recent high levels of inflation under control.

But while it may help bring prices down, the move will likely increase the cost of living for some.

Leasing a car, bank loans, credit card borrowing would all get more expensive.

And while the Fed does not set interest rates for mortgages, the Fed's rate will influence the rates set by lenders—making buying a home more expensive.

The Fed Has 'Blunt Tools' to Tackle Inflation: CNBC Host

The Fed is limited in what it can do to curb rising inflation, with many contributing factors simply out of its control, CNBC host Melissa Lee has said.

Interest rate rises in 2022 have shown little impact on inflation so far, the Fast Money host told Today in the last hour, adding hat there is often a "lag effect."

"There's only so many things the Fed can actually control," she said.

"A lot of the factors contributing to this high inflation—the war in Ukraine; Covid lockdowns in China effecting supply chain issues, drought in the Mid West effecting farms and food prices—those are things, last time I checked, the Fed has no control over.

"And so it can use the tools in its tool box but they are blunt tools. That tool is rising interest rates, hiking rates at this point."

What Exactly Is a 'Recession'?

Another major economic update is expected Thursday: Gross Domestic Product.

When GDP for the second quarter of 2022 is revealed, many will be looking for one thing: has the U.S. economy entered recession?

So what does that mean? Well, it depends who you ask...

Consecutive Quarters of Economic Contraction

  • This is the arguably the most common definition of recession—but it's not the official one in the U.S.
  • The economy shrank at a 1.6 percent rate in the first quarter of 2022. If Q2 figures show it has fallen again, many will deem it a recession.
  • Recessions definitions vary across the world, and this one is widely considered a useful way to compare countries economic fortunes.

National Bureau of Economic Research Analysis

  • Ask White House officials this week and you'll likely get a different response.
  • In a blog post on July 21 titled "How Do Economists Determine Whether the Economy Is in a Recession?" its economists made another case.
  • It said: "The National Bureau of Economic Research (NBER) Business Cycle Dating Committee—the official recession scorekeeper—defines a recession as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months."
  • Based on this "holistic" look at economic activity—including the labor market, consumer and business spending, industrial production, and incomes—"it is unlikely" the U.S. economy faces a recession, it said.

Why the Fed Raises Interest Rates: 'Front-Loading'

The Fed has been upping interest rates at an incredible pace recently, as policymakers look to cool an overheated economy.

In June, its last increase, was the steepest rise since 1994—raising the rate three-quarters of a percentage point.

That came after a quarter-point rise in March and a half-point rise in May.

The idea? To reduce spending and encourage saving, thus slowing down inflation that has resulted in prices rising at a rate not witnessed in four decades.

The approach is commonly referred to as "front-loading."

The Fed is far from alone in deploying the tactic, with central banks around the world announcing ever-sharper interest rate increases.