Federal Reserve watchers are increasingly entertaining the possibility of it raising rates to a level that could weaken growth — elevating the risk of a recession.
Residents of the Los Angeles area are changing how they eat, shop and do business to cope with some of the nation’s highest gas and housing prices.Even if an economic downturn can be avoided, it’s almost inevitable, analysts say, that the Fed will have to inflict some pain — most likely in the form of higher unemployment — as the price of defeating stubbornly high inflation.
Fed officials, as a group, were slow last year to recognize how persistent inflation would be, believing instead that widespread price spikes would likely prove temporary. They are now acting forcefully to try to make up for their initial delay. But after Friday’s inflation report showed no sign of the easing that had been expected, most analysts now foresee another half-point hike in September. And economists at Goldman Sachs say they expect what would be a fifth half-point hike in November.
Spiking oil prices, stemming from Russia’s invasion of Ukraine, have sent the national average for a gallon of gas above $5, according to AAA. Those high prices are weakening the ability of consumers — who drive most of the economy’s growth — to spend freely. Energy costs also pose a problem for the Fed because it can do little to mitigate such supply shocks yet can’t dismiss their effects.of consumer sentiment showed that Americans’ expectations for future inflation are rising.
“The rise in long-run inflation expectations is a game changer” for the Fed, Thomas Simons and Aneta Markowska, economists at investment bank Jefferies, wrote in an email. As a result, the Jefferies economists now predict that the Fed will raise its rate by three-quarters of a point on Wednesday. Economists at Barclays are also forecasting a hike of that size.
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