The Federal Reserve is set to escalate its battle against inflation this week with another substantial interest rate hike, risking deeper economic "pain" for millions of households and businesses nationwide.
With inflation unexpectedly accelerating in August and the job market still growing at a healthy clip, the U.S. central bank is widely expected to approve another 75-basis-point rate hike at the conclusion of its two-day meeting on Wednesday. Some investors are even betting on a full-percentage point move as the Fed faces mounting pressure to tame demand and slow surging consumer prices.
But Wall Street is more focused on what policymakers signal could come next in its inflation fight: The Fed will release its first quarterly forecasts since June, providing insight on where it sees the U.S. economy headed over the next few years. The projections are expected to show an even more aggressive path of interest rate hikes that will likely chip away at economic growth and cause the unemployment rate to climb higher.
"The Federal Reserve is likely tightening policy straight into the teeth of a recession," said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former Dallas Fed adviser. "Many stock investors are hoping for a dovish pivot, but the stock market’s addiction to Fed easing when stocks decline may be what [Federal Reserve Chair] Jerome Powell is aiming to quash by aggressively hiking rates in addition to inflation."