US Federal Reserve to unveil another big rate hike

With the Federal Reserve expected to hike its key interest rate by three-quarters of a percentage point on Wednesday to battle high inflation, focus will shift to how deeply signs of an economic slowdown have registered with its policymakers.

The anticipated increase in the target federal funds rate, the Fed’s key tool in trying to lower inflation from a four-decade high, will bring the US central bank to a mile marker of sorts as it reaches a level of around 2.4% that is estimated to no longer encourage economic activity.

That will represent one of the fastest-ever gear changes in US monetary policy – just over four months ago the policy rate was near zero and the Fed was buying billions of dollars of bonds each month to help the economy recover from the COVID-19 pandemic.

But while there has been little progress registered yet in the inflation fight, signs of economic stress are accumulating – and raising the stakes for Fed officials as they weigh just how much tighter monetary policy needs to be to slow price increases against the risk that going too far could trigger a recession.

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