The risk of a recession deepened as the Federal Reserve raised interest rates another 0.75 points to 3.25% – their highest level since the 2008 crisis – to combat rising inflation.
The Federal Reserve is expected to issue another unusually large rate hike on Wednesday afternoon, deepening the risk of a sharp economic slowdown and job losses.
The Fed is trying to cool the economy in order to control rampant inflation, which remains stubbornly high at 8.3 percent — but as interest rates rise, the path to a so-called ‘soft landing’ for the economy is narrowing.
At the end of its two-day policy meeting on Wednesday, the US central bank is likely to raise its policy rate for a third time by 75 basis points to between 3 percent and 3.25 percent, the highest level since 2008.
The policy decision will be issued at 2pm, and will be followed by Fed Chair Jerome Powell’s press conference, which will be closely watched by investors for signs of the policymaker’s outlook on the economy.
The Fed’s next rate decision will be issued at 2pm followed by Fed Chair Jerome Powell’s press conference, which will be closely watched by investors.
His comments will be parsed for any indication of whether the Fed expects to moderate its rate hikes in the coming months – or continue to significantly tighten credit until inflation is sure to be on the way down.
In a further sign of the Fed’s deep concern about inflation, it is also likely to signal on Wednesday that it plans to raise rates by the end of the year by far more than it forecast three months ago – and to keep them for longer.
Economists expect Fed officials to forecast that their key rate could go up to 4 percent before the new year.
They could signal additional growth in 2023, perhaps up to around 4.5 percent.
By raising its key short-term interest rate, the Fed is trying to cool the economy to curb soaring inflation, which remains stubbornly high at 8.3.
Short-term rates at that level would sharply increase the cost of mortgages, car loans and business loans, making the recession worse next year.
The Fed wants to slow those higher borrowing costs to slow growth by cooling a still-strong job market to accommodate rising wages and other inflationary pressures.
Yet risks are growing that the Fed could weaken the economy enough to trigger a recession that could cause heavy job losses.
Developing story, more to follow.