The Federal Reserve is set to raise borrowing costs enough to tame inflation but not too much to send the economy into a recession.
WASHINGTON -- The Federal Reserve on Wednesday will launch one of the most difficult tasks a central bank can attempt: Raise borrowing costs enough to slow growth and tame high inflation, but not so much as to topple the economy into recession.
As a first step, the Fed is set to raise borrowing rates several times this year, beginning this week with a quarter-point increase in its benchmark short-term rate. Policymakers will also discuss when and how fast to shrink the Fed's $9 trillion in bond holdings, a step that would also have the effect of tightening credit for consumers and businesses.
By raising short-term rates, the Fed hopes to make it costlier to buy homes and cars and to boost credit card rates and borrowing costs for businesses. The resulting pullback in spending should, in turn, slow inflation, Powell told Congress two weeks ago. Strong consumer spending, fueled by stimulus checks and steady hiring and pay raises, has collided with supply shortfalls to raise inflation to 7.9%, the highest rate since 1982.
Yet the Fed faces a dizzying array of uncertainties that will make its task particularly challenging. The economy is still working through shortages of labor and parts stemming from the disruptions of the pandemic. And now prices are rising further for oil, gas, wheat, and other commodities because of Russia's war against Ukraine.
One of those apple carts is the sharp rise in gas prices since the invasion, up 65 cents to $4.33 a gallon, on average, nationwide. The increase will send inflation higher, while probably also slowing growth - two conflicting trends that are difficult for the Fed to manage simultaneously. Yet many economists say that view is outdated and refers mostly to Fed policies from the 1950s through early 1980s. The Fed now operates differently. It communicates its plans more clearly with the public. And it pays closer attention to factors such as inflation expectations, which measure where consumers, businesses and investors see inflation heading.
Norge Siste Nytt, Norge Overskrifter
Similar News:Du kan også lese nyheter som ligner på denne som vi har samlet inn fra andre nyhetskilder.
Federal Reserve expected to raise borrowing rate in risky pursuit of 'soft landing'The Federal Reserve is set to raise borrowing costs enough to tame inflation but not too much to send the economy into a recession.
Les mer »
What does a Federal Reserve interest rate hike mean for Main Street?The Federal Reserve is expected to raise interest rates this week. Here's what that could mean for your wallet.
Les mer »
Fed's coming interest rate hikes may present another economic challenge for DemocratsIn an attempt to curb high inflation, the Federal Reserve is expected this week to begin raising interest rates for the first time in three years.
Les mer »
How the Stock Market ‘Fear Index' WorksThe VIX can spike when investor concerns are heightened by events like the raising of interest rates by the Federal Reserve or the Covid-19 pandemic.
Les mer »
Here's everything the Federal Reserve is expected to do at its meeting this weekThe Fed faces the monumental challenge of starting to undo its massive economic help at a time when conditions are far from ideal.
Les mer »