How much 'pain'? Fed to signal more rate hikes ahead

WASHINGTON (AP) — Federal Reserve Chair Jerome Powell bluntly warned in a speech last month that the Fed’s drive to curb inflation by aggressively raising interest rates would “bring some pain.” On Wednesday, Americans may get a better sense of how much pain could be in store.

In a further sign of the Fed’s deepening concern about inflation, it will also likely signal that it plans to raise rates much higher by year’s end than it had forecast three months ago — and to keep them higher for a longer period.

Economists expect Fed officials to forecast that their key rate could go as high as 4% by the end of this year.

Short-term rates at that level would make a recession likelier next year by sharply raising the cost of mortgages, car loans and business loans.

Powell and other Fed officials still say the Fed’s goal is to achieve a so-called “soft landing,” by which they would slow growth enough to tame inflation but not so much as to trigger a recession.

At a previous news conference in June, Powell had noted that a three-quarter-point rate hike was “an unusually large one” and suggested that “I do not expect moves of this size to be common.” Yet after the alarming August inflation report, the Fed now seems all but sure to announce its third consecutive such increase.

Yet some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.

Loretta Mester, president of the Cleveland Federal Reserve Bank, and one of the 12 officials who will vote on the Fed’s decision this week, said she thinks it will be necessary to raise the Fed’s rate to “somewhat above 4% by early next year and hold it there.”.