How Far Will the Fed Go To Fight Inflation?

Move this week may show how much the Fed is willing to risk jobs to curb prices

Federal Reserve Chair Jerome Powell Holds News Conference Following Federal Open Market Committee Meeting

Drew Angerer / Getty Images

If you’ve gotten a raise at work lately or left your job to go to one that pays better, the Federal Reserve considers those pay increases to be a source of inflation. How far it will go to fix inflation will become clearer this week. 

On Wednesday, officials at the Federal Reserve will announce their next move in their ongoing battle against inflation, and will say how much they are raising the central bank’s benchmark interest rate. Many experts expect a 75 basis point hike in the federal funds rate, bringing it to the 3% to 3.25% range. That would be the third such super-sized rate hike in a row, triple what the Fed usually does when it raises interest rates, and one that until this June, hadn’t been seen since 1994. 

However, given that recent economic data showed inflation stubbornly sticking around, some observers believe an even larger full-percentage-point hike is still on the table. 


The federal funds rate heavily influences interest rates throughout the economy, including those on credit cards and car loans, but it’s not the rate you get on those loans. Banks typically charge a set amount above their so-called prime rate. The prime rate moves in tandem with the fed funds rate, but it’s typically about 3 percentage points higher. 

The goal of these interest rate hikes is to discourage borrowing and spending, and slow the economy down so that demand for goods and services falls. That’s supposed to allow supply and demand to come back into balance. 

This strategy runs the risk of slowing the economy down so much that a recession and layoffs ensue. Fed officials believe the labor market, where hiring is booming and jobs are plentiful, is part of the problem and needs to be reined in. What the Fed does with interest rates could determine whether you get to keep your job in the next few years, economists say.

“The US economy appears to have a one-way ticket towards a recession as the Fed is poised to remain aggressive,” said Edward Moya, senior market analyst at OANDA, in a commentary.

The Fed’s campaign has already had a dramatic effect on the real estate market. Since the rate hikes began in March, they have caused mortgage rates—which are indirectly influenced by the fed funds rate—to skyrocket. The resulting increase in borrowing costs and monthly payments has made many homebuyers drop out of the market, slowing sales and curtailing price rises in a downturn that some economists have already dubbed a “housing recession.” 

Correction - Sept. 21, 2022: This article has been updated to correct the target range for the fed funds rate in the event of a 75 basis-point hike. This article was originally published Sept. 19, 2022.

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  1. Federal Reserve. "Policy Tools."

  2. Wall Street Journal. "Bonds & Rates."

  3. Federal Reserve. "Monetary Policy and Price Stability."

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