The Federal Reserve on Wednesday announced that it would raise its benchmark policy rate by three-quarters of a percentage point, an aggressive hike aimed at reining in stubborn and rapid inflation and the central bank’s biggest increase since 1994. Jeanna Smialek covered the Fed meeting for The New York Times.
Jerome H. Powell, the Fed chair, indicated that an increase of a similar size could follow next month. The increases signal that the central bank is determined to get prices under control even if it means causing economic pain:
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The higher policy rate will make buying a home or expanding a business more expensive, which will restrain spending and slow the broader economy.
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Officials predicted that unemployment would rise slightly, about half a percentage point, by late 2024 as their policy squeezes companies and workers.
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And Mr. Powell also acknowledged that it was becoming increasingly difficult for the Fed to achieve a “soft landing” — slowing inflation without causing a recession.
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Officials expect interest rates to hit 3.4 percent by the end of 2022, according to economic projections they released Wednesday, which would be the highest level since 2008.
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Stock prices have been plummeting and bond market signals are flashing red as Wall Street traders and economists increasingly expect that the economy may tip into a recession. On Wednesday, the S&P 500 was up 1.5 percent, most likely because investors had already expected the Fed’s large move.
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While the economic path ahead may be rocky, the Fed’s policymakers argue that it would be worse not to act. As prices surge, worker pay is not keeping up. That means families are falling behind as they try to afford gas, food and rent.
