Fed hikes rates by three-quarters of a percentage point to fight inflation

Taking aim at stubborn inflation, the Federal Reserve on Wednesday raised interest rates for a fourth time this year to further slow down the economy, arguing that some short-term pain could be the only way to avoid longer-lasting scars.

The Fed hiked interest rates by three-quarters of a percentage point, following a similarly aggressive rate hike in June, even as Chair Jerome H. Powell acknowledged that the Federal Reserve sees previous hikes as already weighing on housing, business investment and consumer demand.

Speaking at a news conference, Powell said he believes the economy is not in a recession. But the paths to avoiding one are narrower than just a few months ago, he added. 

With inflation remaining at 40-year highs and June prices coming in especially hot, Powell emphasized that controlling inflation is the Fed’s chief priority, even if it brings a slowdown in the job market for now.

“Restoring price stability is just something we have to do,” Powell said. “There isn’t an option to fail to do that, because that is the thing that enables you to have a strong labor market over time.”

He added: “If you fail to deal with it in the near term, it only raises the cost of dealing with it later.”

Inflation has plagued policymakers for months, becoming the economy’s biggest problem and weighing on families nationwide, but especially the most vulnerable lower-income families.

Higher prices for milk, gas and clothing have soured people’s sense of how the economy is working for them, dampening consumer sentiment and influencing families to change their own spending behavior, which can worsen inflation.

The glum economic mood has also become a major political problem for the Biden administration going into the midterm elections.