With inflation at a four-decade high, the job market strong and consumers still spending, the U.S. Federal Reserve is under pressure to continue raising interest rates aggressively.
When it ends its latest policy meeting Wednesday afternoon, the Fed is expected to impose a second consecutive three-quarter-point hike in its benchmark interest rate, raising it to a range of 2.25% to 2.5%. It will be the Fed's fourth rate hike since March. Since then, the central bank has tightened credit ever more aggressively.
By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. In turn, consumers and businesses will likely borrow and spend less, cooling the economy and slowing inflation. The Fed's hikes have already led to a doubling of the average rate on a 30-year fixed mortgage in the past year, to 5.5%, and home sales have tumbled.
In the meantime, the surge in inflation and fear of a recession have eroded consumer confidence and stirred public anxiety about the economy, which is sending frustratingly mixed signals. With the November midterm elections nearing, Americans' discontent has diminished U.S. President Joe Biden's public approval ratings and increased the likelihood that the Democrats will lose control of the House and Senate.
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