Federal Reserve warns of ‘pain’ ahead as inflation surges
Federal Reserve chair Jerome Powell warned last month that there would be “pain” ahead as the US central bank struggles to contain a surge in inflation unseen in 40 years. Powell will offer some indication of how much pain he expects on Wednesday.
The Fed is expected to announce another sharp rise in interest rates on Wednesday afternoon after the conclusion of its latest meeting. It will also update its economic forecasts for the US economy.
Economists are predicting the Fed will raise its benchmark interest rate by 0.75 percentage points, the third such rise in a row, and signal plans to raise rates again in the coming months.
The hike comes as central banks around the world are increasing rates to tackle a soaring cost of living crisis. The Bank of England is expected to announce its largest rate rise in 25 years this week and the European Central Bank raised interest rates across the eurozone by a record margin earlier this month as inflation reached double figures in some of its 19 member countries.
Last year the Fed dismissed inflation as a “transitory” issue triggered by the pandemic and supply chain issues, but consumer prices have remained stubbornly high and have remained so despite a change in the Fed’s view and its aggressive rate rises.
The Bureau of Labor Statistics announced last week that prices were 8.3% higher last month compared with August last year. The Fed’s target rate for inflation is 2% annually.
That news has led some to speculate that the Fed could increase rates by a full percentage point, a drastic move for an institution that usually moves rates cautiously up and down by a quarter percentage point.
The sharp rise in interest rates are aimed at slowing the economy and bringing down prices. Higher
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