Fed hikes rates one more time as war on inflation enters new phase

Fed hikes rates one more time as war on inflation enters new phase

The Federal Reserve raised interest rates Wednesday for what could be the last time this year, a major milestone in the fight against inflation.

Following two days of meetings this week, central bank policymakers didn’t close the door on raising borrowing costs further but suggested they’re now taking a wait-and-see approach.

Price spikes have showed steady signs of cooling, and Fed officials hope they have now increased rates enough to continue the momentum — particularly in light of banking turmoil that’s expected to further slow the economy.

If no more rate hikes are ahead, the question then becomes how long the central bank will hold borrowing costs at punishingly high levels and how well the job market will hold up.

Fed policymakers have projected that unemployment could rise a percentage point this year, though for now it remains near modern-era lows at 3.5 percent.

Staff economists at the Fed are projecting a mild recession later this year, although they expect the economy to begin recovering by next year, timing that could prove crucial for President Joe Biden as he seeks a second term in the White House.

But if inflation remains stubbornly high, central bank officials might slam the brakes even harder on growth, causing a sharp jump in joblessness and damaging Biden’s hopes for reelection.

Fed policymakers are also closely monitoring progress toward raising the limit on the U.S. government’s ability to borrow. If Congress can’t come to a deal and Treasury is unable to make payments on time, that could lead to a sharp jump in interest costs, both for the federal government and for borrowers across the globe; Treasury securities are the backbone of all other debt markets.

The Fed’s policy rate now sits between 5 percent and 5.25 percent.


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