The Federal Reserve on Wednesday is expected to announce an increase of up to three-quarters of a percentage point in its benchmark interest rate, triple its usual margin.
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. 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.
The Fed's moves to sharply tighten credit have torpedoed the housing market, which is especially sensitive to interest rate changes. The average rate on a 30-year fixed mortgage has roughly doubled in the past year, to 5.5%, and home sales have tumbled. On Thursday, when the government estimates the gross domestic product for the April-June period, some economists think it may show that the economy shrank for a second straight quarter. That would meet one longstanding assumption for when a recession has begun.
That dilemma could become an even more consequential one for the Fed next year, when the economy may be in worse shape and inflation will likely still exceed the central bank's 2% target.
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