AFP

The US Federal Reserve on Wednesday 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.

It was the second straight 75 basis point increase, and the fourth rate hike this year, as US central bankers move aggressively to cool the strongest surge in inflation in more than four decades, without derailing the world’s largest economy.

While the Fed noted signs that the US economy is slowing, it signaled plans to continue to increase borrowing costs.

President Joe Biden is facing political backlash for surging prices, which he has mainly blamed on the Russian invasion of Ukraine that has sent global food and energy prices soaring. 

Biden insists the US economy will avoid a recession, but even as his approval ratings have cratered, he has supported the Fed in its battle to quell inflation.

Fed Chair Jerome Powell and others have made it clear they are willing to risk a downturn and will keep raising interest rates until they see solid evidence that inflation is moving back towards the two percent goal.

In a vote that was unanimous — unlike the decision made in June — the policy-setting Federal Open Market Committee raised the policy lending rate to a range of 2.25 to 2.5 percent, after starting the year near zero.

“Recent indicators of spending and production have softened,” the FOMC statement said. 

But “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the statement said, adding that it expects ongoing rate increases “will be appropriate.”

Economists say this has been the most aggressive Fed tightening cycle since the 1980s, when stagflation — a wage-price spiral and stagnant growth — crippled the US economy.

The challenge for policymakers is to quell inflation before it becomes dangerously entrenched without sending the world’s largest economy into a recession that would reverberate around the globe.

Powell has argued that the US economy is on solid footing and able to withstand the rate increases, and Wednesday’s statement noted that “job gains have been robust in recent months, and the unemployment rate has remained low.” 

But the FOMC also made clear it is “strongly committed to returning inflation to its two percent objective” — and prepared to do more if that goal is threatened.

All eyes will be on Powell’s press conference starting at 2:30 pm (1830 GMT) for indications of whether he thinks the Fed may be able to ease up or will continue the aggressive moves.

– Recession risk –

Policymakers seemed to acknowledge that some factors are beyond their control.

“Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity,” the statement said.

While prices have continued to rise, with home prices hitting a new record, rising mortgage rates have slowed housing sales for five straight months.

But global oil prices are trending down, with the US benchmark WTI falling below $95 a barrel from a peak of more than $123 a barrel in March, and gasoline prices at the pump have fallen more than 70 cents from the record of just over $5 a gallon in mid-June.

Meanwhile, the job market has remained strong, and surveys show inflation expectations in the months ahead have started to trend lower.

Policymakers want to engineer a “soft landing,” taming inflation without causing a downturn, but economists warn they face an increasingly narrow path to success and it would be easy to overshoot by being too aggressive.

GDP in the first quarter contracted 1.6 percent, and the first reading on the April-June period is due out Thursday. 

Though the consensus forecast calls for modest growth, many economists expect a downturn. 

Two quarters of negative growth are generally considered a sign the economy is in recession, although that is not the official criteria.

“The Fed is now stuck between a rock and a hard place, with no easy way out without the economy feeling pain,” KPMG chief economist Diane Swonk said in an analysis, noting that “Powell has started to underscore that reality by admitting a recession could occur.”

“Brace yourself,” Swonk said on Twitter, likening the surge in inflation to a cancer that will spread if left untreated.

She said the benchmark interest rate likely will have to rise to a range of 3.75-4.0 percent, which would mean another 150 basis points of increase in coming months.

Kansas City Fed President Esther George dissented at the June meeting, warning that moving too fast could be “unsettling” and raise recession fears, but voted for the big rate hike this time.

Boeing said Wednesday it is close to receiving regulatory approval to resume 787 jet deliveries, a move that could help reverse lackluster profits, but warned that its production ramp-up for the 737 MAX would be slowed by supply chain problems.

The US aviation giant’s two most popular commercial planes figured prominently in its mixed quarterly earnings report, with the lack of revenue from the 787 Dreamliner again a big drag.

Shares gyrated following the announcement. 

A resumption of 787 deliveries will restore a key source of revenue, but a more protracted 737 MAX ramp-up suggests Boeing won’t deliver as many of those planes as quickly as had been expected.

“A lot of things good happened over the quarter,” said Chief Executive Dave Calhoun, who described the company as “on the verge” of garnering approval from US air safety officials on the 787, though he declined to give a precise target date.

Calhoun reported no sign of overall slowdown in the sector, telling analysts that “this general recession thing so far hasn’t impacted our aviation industry.” 

“Will it at some moment? Maybe,” he said, while noting that air travel appears to have been “prioritized fundamentally to a higher slot” by consumers tired of pandemic restrictions.

– Engine trouble –

Calhoun however warned that the company had no timetable for lifting production of the MAX to 38 per month from the current level of 31, calling “limited” engine capacity a “constraint” on the company’s outlook.

“Some investment has to get made and capacity has to expand for the engine suppliers to keep up with what I believe will be continued robust demand,” Calhoun said.

Boeing Chief Financial Officer Brian West told analysts to expect MAX deliveries in the “low 400s” in 2022 after previously estimating around 500.

For the quarter ending June 30, Boeing reported a 67 percent plunge in quarterly profits to $193 million, as revenues declined 1.9 percent to $16.7 billion.

The company missed analyst estimates for revenues and earnings-per-share, but stock prices initially rose after the report, as Boeing confirmed it still expects to have positive cash flow in 2022.

On the 787, the company has been working with the Federal Aviation Administration to address a series of manufacturing issues uncovered in 2020 and since.

Boeing took a $3.5 billion charge for additional rework costs on the 787 in the fourth quarter of 2021. It said in April it also expects another $2 billion in “abnormal costs” for the 787.

At the end of June, Boeing had 120 Dreamliner planes in inventory and was producing the jet “at very low rates,” the company said in a filing.

On Wednesday, the company said it was working with US air safety officials on “final actions” to resume 787 deliveries. 

– China haze –

The enhanced regulatory scrutiny of the 787 and other Boeing planes comes on the heels of a pair of crashes in 2018 and 2019 on the 737 MAX, which led to a lengthy global grounding of the plane.

But the MAX has since returned to service, enabling Boeing to resume deliveries and announce significant new orders, including at the Farnborough Airshow earlier this month.

But Boeing still has 290 MAX planes in inventory. A key wild card remains when deliveries will resume in China, where the MAX has still not returned to service. 

“While we expect 737 MAX deliveries to our customers in China to resume in 2022, subject to final regulatory approvals, risk remains around the timing and rate of those deliveries,” Boeing said in a securities filing Wednesday.

Despite the latest Farnborough orders, Boeing’s backlog of orders in the pipeline lags that of archrival Airbus, but Calhoun told CNBC Wednesday he is not worried about the difference.

“We don’t need to close that gap,” Calhoun said, adding that the aviation industry is “supply constrained for as far as I can see.”

Boeing’s job is “to deliver against our backlog,” he said. “My job is to make sure I’ve got a big enough backlog to continue to increase my rate, stay stable in production and satisfy our customers every step of the way.”

By early afternoon, shares were flat at $155.87.

Around 40,000 British railway workers staged a walkout on Wednesday, a month after the largest strike in 30 years as the UK battles its worst cost-of-living crisis in decades.

The nationwide walkout over pay and conditions brought the rail network to a virtual standstill with only one in five training running and caused major disruption to rush-hour commuters as many simply stayed at home.

With inflation at a 40-year high and set to worsen, the cost-of-living crisis presents a major challenge to Foreign Secretary Liz Truss and former finance minister Rishi Sunak, who are vying to replace Prime Minister Boris Johnson in a leadership contest.

London Underground trains and buses ran as normal, but Eurostar reduced the number of trains though the Channel Tunnel as a knock-on effect, despite its staff not joining the walkout.

Mick Lynch, general secretary of the RMT rail union, argues strikes are necessary as wages have failed to keep pace with UK inflation, currently at 9.4 percent and on course to keep rising.

“Network Rail have not made any improvement on their previous pay offer and the train companies have not offered us anything new,” he said.

Wednesday’s 24-hour strike came after RMT staged a three-day walkout last month, also virtually paralysing the rail network.

“The government need to stop their interference in this dispute so the rail employers can come to a negotiated settlement with us,” said Lynch.

The government urged union bosses and train operators to resolve the dispute.

“They don’t need to speak to ministers to resolve this because their employers are the people who have the mandate to negotiate this,” Transport Minister Grant Shapps told Sky News.

“This is just… trying to distract attention,” he added. 

The opposition Labour Party leader Keir Starmer demoted a senior MP, Sam Tarry, for joining a picket line in defiance of his instructions, after the politician posted about his participation on social media.

The London MP was sacked from his frontbench role with responsibility for transport after Starmer said that the party’s role was to try to resolve the dispute, not to go on picket lines.

Services were expected to resume early Thursday.

The Aslef trade union, which represents train drivers, announced a fresh strike for August 13.