Conflicting signs about the health of the U.S. economy have thrust the Federal Reserve into a difficult spot.
With inflation raging at a four-decade high, the job market strong and consumer spending still solid, the Fed is under pressure to raise interest rates aggressively.
But other signs suggest the economy is slowing and might even have shrunk in the first half of the year. Such evidence would typically lead the Fed to stop raising rates—or even cut them.
For now, though, the Fed is focused squarely on its inflation fight, and this week it’s set to announce another hefty hike in its benchmark interest rate. Together with its previous rate increases, the Fed’s moves will make borrowing costlier for individuals and companies and likely weaken the economy over time.
“Until there’s very clear evidence of the labor market beginning to meaningfully deteriorate, the No. 1 focus for the Fed must be inflation,” says Matthew Luzzetti, chief U.S. economist at Deutsche Bank.
When it ends its latest policy meeting Wednesday, the Fed is expected to impose a second consecutive three-quarter-point hike, elevating its key rate to a range of 2.25% to 2.5%. It will be its fourth rate hike since March, when it announced a quarter-point increase. Since then, with inflation setting new four-decade highs, the central bank has tightened credit ever more aggressively. Read the full story.
