Federal Reserve raises interest rates by 75 basis points for third straight month

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Federal Reserve Chairman Jerome Powell holds a press conference following the FOMC decision

Federal Reserve Chairman Jerome Powell holds a press conference following the FOMC decision.

The Federal Reserve on Wednesday raised its benchmark interest rate by 75 basis points for the third straight month as it struggles to bring scorching-hot inflation under control, a move that threatens to slow U.S. economic growth and exacerbate financial pain for millions of households and businesses.

The three-quarter percentage point hikes in June, July and September – the most aggressive series of increases since 1994 – underscore just how serious Fed officials are about tackling the inflation crisis after a string of alarming economic reports. Policymakers voted unanimously to approve the latest super-sized hike.

The move puts the key benchmark federal funds rate at a range of 3% to 3.25%, the highest since before the 2008 financial crisis. It marks the fifth consecutive rate increase this year.

In addition to the large rate hike, Fed officials laid out an aggressive path of rate increases for the remainder of the year. New economic projections released after the two-day meeting show policymakers expect interest rates to hit 4.4% by the end of the year, suggesting that another three-quarter percentage point increase is on the table. 

BILLIONAIRE DAVID RUBENSTEIN WARNS INFLATION WILL BE 'DIFFICULT' FOR THE FED TO REDUCE

Officials expect to continue raising rates in 2023, before stopping at a termination rate of 4.6% – well into restrictive territory – and modestly lowering rates beginning in 2024.

"Restoring price stability will likely require maintaining a restrictive policy stance for some time," Chairman Jerome Powell said during a post-meeting press conference. "The historical record cautions against prematurely loosening the policy."

The rate hike decision and the latest economic projections underscore just how committed the Fed is to wrangling inflation under control, even if that means risking an economic recession. 

Despite the slew of aggressive rate increases, however, inflation has remained stubbornly high. It ran even hotter than expected last month, with the consumer price index, a broad measure of the price for everyday goods that includes gasoline, groceries and rents, increasing 0.1% in August from the previous month, dashing hopes for a slowdown. On an annual basis, inflation is running at 8.3% — a nearly 40-year high.

Even more concerning is the surge in core prices, which climbed 0.6% in August from the previous month – a bigger increase than in April, May, June and July, and a troubling sign that underlying inflationary pressures in the economy remain strong.

But the efforts to combat inflation carry a potential risk of recession, with a growing number of economists and Wall Street firms forecasting an economic downturn this year or next. Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. Mortgage rates have nearly doubled from one year ago to 6%, while some credit card issuers have ratcheted up their rates to 20%.

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Economists widely agree the risks of a recession climbed considerably this year and that avoiding a downturn in the near future will be increasingly difficult as the Fed tightens monetary policy.

This is a developing story. Please check back for updates.

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