This year, rates may reach their highest level since the collapse of Wall Street in 2008, when prices continue to rise. This outlook led to a decline in stocks this year and for the first time in a decade raised mortgage rates above 5 percent. As investors became more diligent, stocks rose after Fed Chairman Jerome Powell said the central bank did not expect to raise rates even further. Despite this, he said, a more significant increase was “on the table” for the next few meetings.

“Inflation is too high and we understand the difficulties it causes,” Powell told reporters after the meeting.

Reduced borrowing costs for the rest of 2022 increase the chances of the U.S. going into recession in election year, an event that will lead to voters already angry at President Joe Biden’s behavior with the economy.

Powell said the Fed could avoid such an outcome. “We have a good chance to restore price stability without a recession, without a sharp decline, without material growth in unemployment,” he said. “Now I see a strong economy. I see a very strong labor market. “

He acknowledged that the challenge will be difficult, especially if supply chain disruptions continue to hurt the global economy. But he said the Fed was ready to do whatever it took to raise prices, adding: “We are moving fast to bring it back down.”

“I have no doubt that the Fed will reach its inflation target in the next two to three years,” said Gus Focher, chief economist at PNC Financial, the country’s ninth-largest bank. “We may not like the result.”

The Fed’s rate-raising campaign marks a new era for the economy. Central bank policies over the years have enriched many Americans by helping to raise stock prices in the stratosphere, raising housing prices to a record $ 43 trillionand given ordinary consumers the extra money that can be spent through lower borrowing costs and home refinancing.

The end of those good times has shaken consumer confidence by putting uncomfortable attention on Fed’s unelected politicians ahead of mid-term terms in Congress as they transition to anti-inflation. Republican critics of the Fed – and some prominent Democrats – have even accused the central bank itself of allowing inflation to keep up for so long.

“The Fed just doesn’t like to do something like that in an election year,” said Charles Calamiris, a professor at the Columbia School of Business who worked as a chief economist at a key banking regulatory agency under former President Donald Trump. “It’s very embarrassing.”

It is unclear how far the Fed will go. The central bank still sees the possibility that inflation may cool somewhat on its own as supply chain bottlenecks ease and Congressional spending disappears. At best, the Fed can raise rates from their ultra-low levels without having to go much further and constrain the economy.

But professional forecasters tend to expect the central bank to have to halt growth more strongly than this to cut costs and ultimately inflation, which, according to Powell, they will not hesitate to do if necessary. Some economists believe the Fed will have to raise rates much higher than they now predict to even get to a place where they themselves will not contribute to price spikes.

“The Fed has missed its chance to tighten without a recession,” Kalamiris said. “The longer they linger and pretend they still have a chance, the more serious they will be.”

After four decades, when the Fed’s key lending rate almost never fell below 2.5 percent, the economy has now watched for more than a decade when it has never risen above that figure. After the change on Wednesday, the rate is 0.75 to 1 percent.

It is now expected that the central bank will continue to increase borrowing costs at each of its interest rate meetings, which take place approximately every six weeks, until the end of the year. He will also watch for signs that he is putting too much pressure on the brakes.

“With inflation at its 40-year high, it’s hard to see the Fed ready to stop any time soon,” said Beth Ann Bovina, chief economist at S&P Global Ratings. “They seem ready to push on the gas.”

Fears of a Fed-induced recession in 2023 have increased, especially in combination with the economic consequences of Russia’s invasion of Ukraine and the resumption of blockades in China, which the central bank acknowledged in a statement is likely to exacerbate supply chain problems. But some Fed observers hope it will be able to slow the economy without leading to a full contraction.

“It’s too early to say we should have a recession,” said Krishna Guha, vice president of Evercore ISI and a former New York Fed official. But still this process will not be soft, he added. “When we talk about soft landing, we don’t mean super soft landing. We mean inconvenient normalization. “

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