What Comes Next in the Fed’s Fight Against Inflation?
The Federal Reserve is expected to deliver a third straight supersize interest rate increase this week as it wages its most aggressive fight against inflation since the 1980s — and it could signal even more to come.
Central bankers are widely expected to raise interest rates three-quarters of a percentage point at their meeting on Wednesday, and investors think there is even a small chance of a full percentage-point move.
But Wall Street is more focused on what comes next. Officials will release updated economic forecasts for the first time since June after their two-day meeting this week. Those are expected to show a more forceful path ahead for rates than Fed officials previously anticipated as rapid inflation continues to plague America. The question is just how much more assertive the Fed will be.
Central bankers have already raised interest rates considerably in an attempt to slow the economy and temper price increases. Business activity is slowing in response, but it is not falling off a cliff: Employers continue to hire, wages are rising, and inflation has remained stubbornly quick.
That has prompted officials to reinforce in speeches that they are serious about getting price increases under control, even if doing so comes at a cost to growth and the labor market. It’s an inflation-focused tone that many on Wall Street refer to as “hawkish.”
The economic projections could give policymakers the chance to underline that commitment.
“Things are not quite evolving as they had expected — they’re having trouble slowing the economy,” said Gennadiy Goldberg, a U.S. rates strategist at TD Securities. “At the end of the day, there is very little they can do this week but sound hawkish.”
Jerome H. Powell, the Fed chair, will hold a news conference after the release, and is likely to echo his pledge late last month to do what it takes to wrestle prices lower.
That could be a painful process, Mr. Powell has acknowledged. Higher interest rates temper inflation by making it more expensive to borrow money, discouraging both consumption and business expansions. That weighs on wage growth and can even push unemployment higher. Firms cannot charge as much in a slowing economy, and inflation cools down.