The Federal Reserve is set to escalate its battle against inflation this week with another substantial interest rate hike, risking deeper economic “pain” for millions of households and businesses nationwide.

With inflation unexpectedly accelerating in August and the job market still growing at a healthy clip, the U.S. central bank is widely expected to approve another 75-basis-point rate hike at the conclusion of its two-day meeting on Wednesday. Some investors are even betting on a full-percentage point move as the Fed faces mounting pressure to tame demand and slow surging consumer prices.

But Wall Street is more focused on what policymakers signal could come next in its inflation fight: The Fed will release its first quarterly forecasts since June, providing insight on where it sees the U.S. economy headed over the next few years. The projections are expected to show an even more aggressive path of interest rate hikes that will likely chip away at economic growth and cause the unemployment rate to climb higher.

“The Federal Reserve is likely tightening policy straight into the teeth of a recession,” said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former Dallas Fed adviser. “Many stock investors are hoping for a dovish pivot, but the stock market’s addiction to Fed easing when stocks decline may be what [Federal Reserve Chair] Jerome Powell is aiming to quash by aggressively hiking rates in addition to inflation.”

Powell — who will hold a press conference on Wednesday at 2:30 p.m. ET — has struck an increasingly hawkish tone over the past month as the Fed is trying to get inflation closer to its target goal of 2%.

In a brief but direct speech at the Kansas Fed’s annual economic symposium in Jackson Hole, Wyo., last month, Powell stressed that the Fed is committed to crushing inflation, regardless of the potential economic fallout that ensues from higher rates.

“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said last month, adding, “We will keep at it until we are confident the job is done.”


Central bank policymakers already approved four consecutive interest rate hikes, including back-to-back 75-basis-point increases in June and July, and have shown no sign of taking their foot off the brake as inflation remains painfully high.

The current benchmark federal funds range of 2.25% to 2.50% is around the “neutral” level, meaning that it neither supports nor restricts economic activity. A three-quarter percentage point increase would put the range at 3.00% to 3.25%, nearing restrictive territory. Investors expect the Fed to hold rates in a restrictive range for some time until there is clear evidence that inflation has subsided and will not return.

Goldman Sachs economists see the benchmark lending rate peaking at a range of 4.25% to 4.5% in 2023, before the Fed cuts rates in 2024 and twice more in 2025. Citi economists, meanwhile, think that rates could climb as high as 5% as the Fed combats inflation.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said in August. “The historical record cautions strongly against prematurely loosening policy.”

Inflation ran even hotter than expected last month, with the consumer price index, a broad measure of the price for everyday goods that includes gasoline, groceries and rents, increasing 0.1% in August from the previous month, dashing hopes for a slowdown. On an annual basis, inflation is running at 8.3% — a nearly 40-year high.

But the efforts to combat inflation carry a potential risk of recession, with a growing number of economists and Wall Street firms forecasting an economic downturn this year or next.

Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. Mortgage rates have nearly doubled from one year ago to more than 6.0%, while some credit card issuers have ratcheted up their rates to 20%.