Looming over the Federal Reserve meeting that ends Wednesday is a question of intense interest: Just how high will the Fed’s inflation-fighters raise interest rates — and might they slow their rate hikes as soon as next month.
FILE - Federal Reserve Chair Jerome Powell speaks at a news conference Wednesday, Sept. 21, 2022, at the Federal Reserve Board Building, in Washington. The Federal Reserve may reach a turning point this week as it announces what's expected to be another substantial three-quarter-point hike in its key interest rate. The Fed's hikes have already led to much costlier borrowing rates, ranging from mortgages to auto and business loans.
So far this year, the Fed has raised its key rate five times in an aggressive pace that has sent borrowing rates surging across the economy and heightened the risk of a recession. The home market, in particular, has been badly bruised as a consequence. The average rate on a 30-year fixed mortgage, just 3.14% a year ago, surpassed 7% last week, mortgage buyer Freddie Mac reported. Sales of existing homes have dropped for eight straight months.
A ratio that high means that employers will likely continue to raise pay to attract and keep workers. Those higher labor costs are often passed on to customers in the form of higher prices, thereby fueling more inflation. Ultimately, economists at Goldman Sachs expect the Fed's policymakers to raise their key rate to nearly 5% by March. That is above what the Fed itself had projected in its previous set of forecasts in September.
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