Fed likely to deliver more economic 'pain' with another significant interest rate hike

Fed likely to deliver more economic 'pain' with another significant interest rate hike

The Federal Reserve is likely to approve the third straight 75-basis-point interest rate hike on Wednesday as it further intensifies its war on inflation.


The Federal Reserve is set to escalate its battle against inflation this week with another substantial interest rate hike, risking deeper economic "pain" for millions of households and businesses nationwide.

With inflation unexpectedly accelerating in August and the job market still growing at a healthy clip, the U.S. central bank is widely expected to approve another 75-basis-point rate hike at the conclusion of its two-day meeting on Wednesday. Some investors are even betting on a full-percentage point move as the Fed faces mounting pressure to tame demand and slow surging consumer prices.

But Wall Street is more focused on what policymakers signal could come next in its inflation fight: The Fed will release its first quarterly forecasts since June, providing insight on where it sees the U.S. economy headed over the next few years. The projections are expected to show an even more aggressive path of interest rate hikes that will likely chip away at economic growth and cause the unemployment rate to climb higher.

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"The Federal Reserve is likely tightening policy straight into the teeth of a recession," said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former Dallas Fed adviser. "Many stock investors are hoping for a dovish pivot, but the stock market’s addiction to Fed easing when stocks decline may be what [Federal Reserve Chair] Jerome Powell is aiming to quash by aggressively hiking rates in addition to inflation."

Powell — who will hold a press conference on Wednesday at 2:30 p.m. ET — has struck an increasingly hawkish tone over the past month as the Fed is trying to get inflation closer to its target goal of 2%.

In a brief but direct speech at the Kansas Fed's annual economic symposium in Jackson Hole, Wyo., last month, Powell stressed that the Fed is committed to crushing inflation, regardless of the potential economic fallout that ensues from higher rates.

"While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses," Powell said last month, adding, "We will keep at it until we are confident the job is done."