The US central bank’s decision was in line with what economists had expected, although there was some thought the Fed could hike even more – a full percentage point. Instead, the Fed raised its benchmark interest rate by 75 basis points for the third time in a row. The Fed’s interest rate is now at its highest since 2008, and policymakers are signaling they’re not done yet: Officials have forecast they will raise the key rate to about 4.4 percent by the end of the year, a full percentage point higher than they had predicted in June. This aggressive run on interest rates shows just how much of a problem policymakers think inflation is. Inflation rates have soared to multi-decade highs around the world in recent years, prompting a series of actions by central banks to bring it under control. All things being equal, central banks raise interest rates when they want to calm an overheated economy and cut interest rates when they want to stimulate lending to grow the economy. The Fed’s move will make it more expensive to take out mortgages or other forms of credit — and will no doubt dampen consumer spending in the process. The Fed is trying to reduce inflation without triggering a recession, and pulling it back may be difficult, said Desjardins economist Royce Mendes. “With the Fed laser-focused on containing inflation, there is now a greater chance … that their aggressive actions will lead to a recession,” he said.
