Fed set to impose another big rate hike to fight inflation.
But other signs suggest the economy is slowing and might even have shrunk in the first half of the year. Such evidence would typically lead the Fed to stop raising rates — or even cut them.
By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. In turn, consumers and businesses will likely borrow and spend less, cooling the economy and slowing price increases. The Fed’s hikes have already led to a doubling of the average rate on a 30-year fixed mortgage in the past year, to 5.5%,.
A news conference that Chair Jerome Powell will hold Wednesday — and whatever signals, if any, he sends about the Fed’s next steps — will draw intense interest. Since the Fed met in June, the Oddly enough, though, despite the robust job market and its role in keeping inflation high, by some measures the economy is barely growing, if at all. When the government reports Thursday on growth in the April-June period, it may show that the economy shrank for a second consecutive quarter.
On Wednesday, Powell is expected to hammer home the Fed’s determination to raise rates until inflation falls, even at the risk of slowing growth too much. Other officials have made clear they expect the Fed to continue raising rates for the foreseeable future.
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