WASHINGTON — Last month, when Federal Reserve Chair Jerome Powell spoke at an economic conference in Jackson Hole, Wyoming, he issued a blunt warning: The Fed’s drive to curb inflation by aggressively raising interest rates, he said, would “bring some pain” for Americans.
WASHINGTON — Last month, when Federal Reserve Chair Jerome Powell spoke at an economic conference in Jackson Hole, Wyoming, he issued a blunt warning: The Fed’s drive to curb inflation by aggressively raising interest rates, he said, would “bring some pain” for Americans.
When the Fed ends its latest meeting Wednesday and Powell holds a news conference, Americans will likely get a better idea of how much pain could be in store.
The central bank is expected to raise its key short-term rate by a substantial three-quarters of a point for the third consecutive time. Another hike that large would boost its benchmark rate — which affects many consumer and business loans — to a range of 3% to 3.25%, the highest level in 14 years.
Many Fed watchers, though, will be paying particular attention to Powell’s words at a news conference afterward. His remarks will be parsed for any hint of whether the Fed expects to moderate its rate hikes in the coming months — or instead to continue tightening credit significantly until it’s convinced that inflation is on its way down.
In a further sign of the Fed’s deepening concern about inflation, it will also likely signal Wednesday that it plans to raise rates much higher by year’s end than it had forecast three months ago — and to keep them higher for longer. Economists expect Fed officials to forecast that their key rate could go as high as 4% before the new year. They’re also likely to signal additional hikes in 2023, perhaps to as high as roughly 4.5%.
Short-term rates at that level would make a recession likelier next year by sharply raising the costs of mortgages, car loans and business loans. The Fed intends those higher borrowing costs to slow growth by cooling a still-robust job market to cap wage growth and other inflation pressures. Yet the risk is growing that the Fed may weaken the economy so much as to cause a downturn that would produce heavy job losses.
The economy hasn’t seen rates as high as the Fed is projecting since before the 2008 financial crisis. Last week, the average fixed mortgage rate topped 6%, its highest point in 14 years. Credit card borrowing costs have reached their highest level since 1996, according to Bankrate.com.
Powell and other Fed officials still say the Fed’s goal is to achieve a “soft landing,” by which they would slow the economy enough to tame inflation but not so much as to trigger a recession.
By last week, though, that goal appeared further out of reach after the government reported that inflation over the past year was a painful 8.3%.
The inflation report also documented just how broadly inflation has spread through the economy, complicating the Fed’s task. Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession.
