The Fed has ‘themselves in a corner’: Former official

Former Kansas City Federal Reserve President and CEO Thomas Hoenig argued on Wednesday that the Fed has "themselves in a corner" as the job of the central bank has "gotten more difficult." 

Hoenig made the comments on "Mornings with Maria" a few hours before the Federal Reserve is expected to announce a 50-basis point rate hike in what will be the second of several anticipated increases this year as policymakers look to cool red-hot inflation, a move that comes at a precarious time for the U.S. economy as it confronts a continuing pandemic and a war in Europe.  

While the Fed's actions are closely monitored by Wall Street, people on Main Street will be impacted, too and should expect to pay more for car loans, mortgages and credit card balances.

FEDERAL RESERVE EXPECTED TO HIKE INTEREST RATES THIS WEEK, DESPITE UKRAINE VOLATILITY

"When you do significant rate increases or anticipate significant rate increases asset values drop," Hoenig noted on Wednesday. 

"Remember when you were quantitative easing and you had zero interest rates, those assets were increasing very rapidly, in fact you had serious asset inflation, so now you are doing the opposite." 

The Fed’s monthly asset purchases, known as quantitative easing, were intended to stabilize the financial markets and keep credit cheap during the pandemic.

"You are going to see a real reduction in that and I think that’s a concern to the markets and probably a concern to the Fed because it could spark its own negative reactions, panic, whatever you want to call it," Hoenig continued. 

"So they are going to be very mindful of that, and their job only has gotten more difficult with continued supply disruptions, so they have themselves in a corner." 

U.S. stocks traded higher Wednesday ahead of an expected interest rate increase from the Federal Reserve.

Ticker	Security	Last	Change	Change %
I:DJI	DOW JONES AVERAGES	37775.38	+22.07	+0.06%
SP500	S&P 500	5011.12	-11.09	-0.22%
I:COMP	NASDAQ COMPOSITE INDEX	15601.498878	-81.87	-0.52%

Fed Chairman Jerome Powell confirmed last month that central bank officials are likely to raise interest rates by a half-point in May and subsequent months.

After the 50 basis point hike on Wednesday, some economists say the Fed may be even more aggressive at other meetings this year, perhaps raising rates by 75 basis points.  

Rising interest rates will have a direct impact on Americans, who are already struggling with soaring prices and wage gains that are insufficient to offset inflation.

Inflation accelerated to a new four-decade high in March and price hikes were widespread with energy prices rising a staggering 11% in March from the previous month, and are up 32% from last year. 

Last month, the Labor Department said that the consumer price index (CPI) – which measures a bevy of goods including gasoline, health care, groceries and rents – rose 8.5% in March from a year ago, the fastest pace since December 1981, when inflation hit 8.9%. Prices jumped 1.2% in the one-month period from February, the largest month-to-month jump since 2005.

The inflation data for April will be released next week. 

The Fed's challenge is to implement rate increases without choking off growth and landing the U.S. in a recession. 

Hoenig said he expects the Fed "will go through" with the 50-basis point rate hike. 

He noted that "there has been some discussion" of a 75-basis point rate hike, but said he believes the central bank will "be hesitant to do that in this move," but could perhaps raise rates by that amount later. 

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As Hoenig predicted, the Federal Reserve on Wednesday afternoon raised its benchmark interest rate by a half point for the first time in two decades as policymakers intensify their fight to cool inflation, a move that threatens to slow U.S. economic growth and exacerbate financial pressure on Americans.  

The widely anticipated move – that the Fed would raise rates by 50 basis points – comes as officials face mounting pressure to move more aggressively to cool demand and slow rising consumer prices. 

During a news conference Wednesday afternoon, Fed Chairman Jay Powell told reporters that the committee is "not actively considering 75-basis point hike." 

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FOX Business’ Breck Dumas contributed to this report.