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[WATCH] Fed Hikes Interest Rates Again in Bid to Stave Off Recession

[WATCH] Fed Hikes Interest Rates Again in Bid to Stave Off Recession

The Federal Reserve raised interest rates on Wednesday by a significant three-quarters of a point for a second straight time in its most aggressive drive in three decades to tame high inflation. The central bank’s decision follows a jump in inflation to 9.1%, the fastest annual rate in 41 years, and reflects its strenuous efforts to slow price gains across the economy.

The Fed’s move will raise its key rate, which affects many consumer and business loans, to a range of 2.25% to 2.5%, its highest level since 2018. By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

Federal Reserve Chair Jerome Powell suggested on Wednesday at a news conference that the Fed’s rate hikes have already had some success in slowing the economy and possibly easing inflationary pressures. “I do not think the U.S. is currently in a recession,” Powell told reporters.

But Powell’s remarks come amid a surge in inflation, and a fear of a recession has only added to already eroded consumer confidence and stirred public anxiety about the economy, which is sending frustratingly mixed signals. Consumers are showing signs of cutting spending in the face of high prices. And business surveys suggest that sales are slowing. The central bank is betting that it can slow growth just enough to tame inflation yet not so much as to trigger a recession — a risk that many analysts fear may end badly.

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Powell suggested that with the economy slowing, demand for workers easing, and wage growth possibly peaking, the economy is evolving in a way that should help reduce inflation. “Are we seeing the slowdown in economic activity that we think we need?” he asked. “There’s some evidence that we are.”

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