Fed attacks inflation with another big rate hike and expects more.
WASHINGTON — Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate Wednesday by a substantial three-quarters of a point for a third straight time and signaled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.
On Wall Street, stock prices fell and bond yields rose in response to the Fed’s projection of further steep rate hikes ahead. Fed officials now see the economy expanding just 0.2% this year, sharply lower than its forecast of 1.7% growth just three months ago. And it expects sluggish growth below 2% from 2023 through 2025.
Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier. Declining gas prices might have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections.
Some economists are beginning to express concern that the Fed’s rapid rate hikes -- the fastest since the early 1980s -- will cause more economic damage than necessary to tame inflation. Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases – a key driver of inflation -- are levelling off and by some measures even declining a bit.
And in China, the world’s second-largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If recession sweeps through most large economies, that could derail the U.S. economy, too.
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