Fed attacks inflation with its largest rate hike since 1994
The unusually large rate hike came after data released Friday showed
"We thought strong action was warranted at this meeting, and we delivered that," Fed Chair
Powell said it was imperative to go bigger than the half-point increase the Fed had earlier signaled because inflation was running hotter than anticipated - causing particular hardship on low-income Americans. Another concern is that the public is increasingly expecting higher inflation in the future, which can become a self-fulfilling prophecy by accelerating spending among consumers seeking to avoid rising prices for certain goods.
The central bank revised its policy statement to acknowledge that its efforts to quell inflation won't be painless, removing previous language that had said Fed officials expect "the labor market to remain strong."
"It's going to be a far bumpier ride to get inflation down than what they had anticipated previously," said
Fed officials forecast unemployment ticking up this year and next, reaching 4.1% in 2024 - a level that some economists said would risk a recession.
Yet Powell largely stuck to his previous reassurances that - with unemployment near a five-decade low, wages rising, and consumers' finances mostly solid - the economy can withstand higher interest rates and avoid a recession.
"We're not trying to induce a recession now," he said. "Let's be clear about that. We're trying to achieve 2% inflation."
Powell said that another three-quarter-point hike is possible at the Fed's next meeting in late July if inflation pressures remain high, although he said such increases would not be common.
Some financial analysts suggested Powell struck the right balance to reassure markets, which rallied on Wednesday.
"He hit it hard that ‘we want to get inflation down' but also hit hard that ‘we want a soft landing,' " said
Still, the Fed's action on Wednesday was an acknowledgment that it's struggling to curb the pace and persistence of inflation, which is being fueled by a strong consumer spending, pandemic-related supply disruptions and soaring energy prices that have been aggravated by
How Americans will feel the squeeze from higher interest rates
We’re getting use to inflation. That makes the Federal Reserve nervous.
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