Fed boosts interest rate 0.75% for 3rd time in row

With more hikes expected, economists foresee a recession by early next year

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 consecutive time and signaled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.

The Fed’s move boosted its benchmark short-term rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level since early 2008.

The officials also forecast that they will further raise their benchmark rate to roughly 4.4% by year’s end, a full point higher than they had envisioned as recently as June. And they expect to raise the rate next year, too, to about 4.6%. That would be the highest level since 2007.

By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

Falling gas prices have slightly lowered headline inflation, which was at 8.3% in August compared with a year earlier.

Speaking at a news conference, Chair Jerome Powell said that before Fed officials would consider halting their rate hikes, they would “want to be very confident that inflation is moving back down” to their 2% target. He noted that the strength of the job market is fueling pay gains that are helping drive up inflation. And he stressed his belief that curbing inflation is essential to ensuring the longterm health of the job market.

“If we want to light the way to another period of a very strong labor market,” Powell said, “we have got to get inflation behind us. I wish there was painless way to do that. There isn’t.”

Fed officials have said they are seeking a “soft landing,” slowing growth enough to tame inflation but not so much as to trigger a recession. Yet most economists say they think the Fed’s steep rate hikes will lead, over time, to job cuts, rising unemployment and a fullblown recession late this year or early next year. In their updated economic forecasts, the Fed’s policymakers project that economic growth will remain weak for the next few years. It expects the jobless rate to reach 4.4% by the end of 2023, up from its current level of 3.7%. Historically, economists say, any time the unemployment rate has risen by a halfpoint over several months, a recession has always followed.

Fed officials now foresee the economy expanding just 0.2% this year, sharply lower than their forecast of 1.7% growth just three months ago. And they envision sluggish growth below 2% from 2023 through 2025.

And even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes the volatile food and gas categories — to be 3.1% at the end of next year, well above its 2% target.

Short-term rates at a level the Fed is now envisioning would make a recession likelier next year by sharply raising the costs of mortgages, car loans and business loans.