Recession risks deepen with Fed expected to raise interest rates another 0.75 points
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Recession risks are mounting as the Federal Reserve is expected to raise interest rates by another 0.75 points to 3.25% – the highest level since the 2008 crisis – in a bid to fight rising inflation
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The Federal Reserve is expected to implement another unusually large rate hike on Wednesday afternoon, raising the risks of a sharp economic downturn and job losses.
The Fed is trying to cool the economy to contain rampant inflation, which remains stubbornly high at 8.3 percent, but as interest rates rise, the path to a so-called ‘soft landing’ for the economy narrows.
At the end of its two-day policy meeting on Wednesday, the US central bank is likely to raise its key rate by 75 basis points for the third time to a range of 3 percent to 3.25 percent, the highest level since 2008.
The policy decision will be made at 2 p.m. and will be followed by the press conference of Fed Chair Jerome Powell, who will be closely watched by investors for signs of policymakers’ outlook on the economy.
The Fed’s next rate decision will be announced at 2 p.m. and will be followed by Fed Chair Jerome Powell’s press conference, which will be closely watched by investors
His comments will be analyzed to see if the Fed expects to moderate rate hikes in the coming months — or instead continue to tighten lending significantly until it’s convinced inflation is on the decline.
As another sign of the Fed’s mounting concerns about inflation, it will also likely indicate Wednesday that it plans to raise interest rates much higher by the end of the year than it forecast three months ago — and to keep it higher for longer.
Economists expect Fed officials to predict that their key rate could rise as much as 4 percent for the new year.
They are also likely to signal additional increases in 2023, perhaps up to about 4.5 percent.
By raising its key short-term interest rate, the Fed is trying to cool the economy to contain rampant inflation, which remains stubbornly high at 8.3.
Short-term interest rates at that level would make a recession more likely next year by sharply raising the cost of mortgages, auto loans and business loans.
The Fed plans to slow those higher borrowing costs by cooling down a still strong job market to curb wage growth and other inflationary pressures.
Still, there is a growing risk that the Fed will weaken the economy so much that it will trigger a downturn that would lead to heavy job losses.
Story in development, more to come.