The Fed is expected at its latest meeting to raise its key short-term rate by a substantial three-quarters of a point for the third consecutive time.
A for sale sign is posted in front of a home in Sacramento, California, March 3, 2022. The Federal reserve is expected at its meeting this week to raise its key interest rate by a substantial three-quarters of a point for the third consecutive time. Another hike that large would lift its benchmark rate — which affects many consumer and business loans — to a range of 3% to 3.25%, the highest level in 14 years.
Economists expect Fed officials to forecast that their key rate could go as high as 4% by the end of this year. They’re also likely to signal additional increases 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 cost of mortgages, car loans and business loans.
The inflation report also documented just how broadly inflation has spread through the economy, complicating the the Fed’s anti-inflation efforts. 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.
“It’s going to end up being a hard landing,” said Kathy Bostjancic, an economist at Oxford Economics.“He’s not going to say that,” Bostjancic said. But, referring to the most recent Fed meeting in July, when Powell raised hopes for an eventual pullback on rate hikes, she added: “He also wants to make sure that the markets don’t come away and rally. That’s what happened last time.”
The central bank has already engaged in the fastest series of interest rate hikes since the early 1980s. Yet some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.
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