The Federal Reserve on Wednesday delivered its third straight 75-basis point interest rate hike in its campaign to drive borrowing costs high enough to bring down 40-year high inflation.
The goal: to get businesses and households to pull back on spending and reduce demand for goods, services and labor, thereby easing upward pressure on prices.
Fed Chair Jerome Powell has said that the rapid and forceful action the central bank is taking will have "unfortunate costs" including a rise in the unemployment rate, currently at a very low 3.7%. Fed policymakers expect it to rise to 4.4% by the end of next year, projections released Wednesday show.
None of those recessions, though, were preceded by inflation anywhere near as high as today, a fact that could make a coming downturn more painful.Wages grew at a 5.2% annual rate in August, a strong clip, with the lowest paid workers seeing the biggest rise in their pay packets. But that's where the good news ends. Policymakers view that pace of wage growth as too strong to be consistent with the Fed getting overall inflation back to its 2% goal, so they are trying to tamp it down.
Fed policymakers see inflation, now at 6.3% by their preferred measure, falling to 2.8% by the end of next year, projections released on Wednesday show.Households will see an increase in the interest rate on their savings accounts, particularly at online institutions. But in general, banks are slow to pass on the Fed's rate increases to savers and do so at levels typically far below the central bank's policy rate and, currently, inflation.
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