The Fed intensifies its battle against inflation

Federal Reserve officials, struggling to contain the most rapid inflation in 40 years, delivered a third big rate increase Wednesday and projected a more aggressive path ahead for monetary policy, one that would lift interest rates higher and keep them elevated longer.

The Fed raised its policy interest rate by three-quarters of a percentage point, boosting it to a range of 3% to 3.25%. That’s a significant jump from as recently as March, when the federal funds rate was set at near-zero, and the increases since then have made for the Fed’s fastest policy adjustment since the 1980s.

Even more notably, policymakers predicted Wednesday that they would raise borrowing costs to 4.4% by the end of the year and forecast markedly higher interest rates in the years to come than they had previously expected. Fed chair Jerome Powell warned that those moves would be painful for the U.S. economy – but said curbing growth to contain price increases was essential.

“We have got to get inflation behind us,” Powell said during his post-meeting news conference. “I wish there were a painless way to do that; there isn’t.”

Together, the Fed’s stark projections and the Fed chair’s comments amounted to a declaration: The central bank is determined to crush inflation, even if doing so comes at a cost to the economy in the near term. That message got through to markets, with the S&P 500 index closing down 1.7%.

Prices continue to increase at more than three times the central bank’s target rate of 2%, making everyday life hard to afford as everything from rent to food to household goods continues to grow more expensive. The jump in inflation stems partly from supply chain disruptions caused by the pandemic and war in Ukraine. But the price pressures also come from sustained consumer demand, which has allowed companies to charge more without losing customers.

In fact, people have continued to buy cars, retail goods and dinners out even as the central bank has begun to sharply raise interest rates. Companies have continued to rake in big profits while hiring at a rapid clip, lifting wages as they compete for scarce workers – and sending prices relentlessly higher.

The Fed is trying to change that, a statement the central bank delivered clearly on Wednesday.