Fed unleashes another big rate hike

WASHINGTON — The Federal Reserve on Wednesday raised its benchmark interest rate by a hefty three-quarters of a point for a second straight time in its most aggressive drive in three decades to tame high inflation.

The Fed’s move will raise its key rate, which affects many consumer and business loans, to a range of 2.25 percent to 2.5 percent — its highest level since 2018.

The central bank’s decision follows a jump in inflation to 9.1 percent, the fastest annual rate in 41 years, and reflects its strenuous efforts to slow price gains across the economy.

By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

The Fed is tightening credit even while the economy has begun to slow, thereby heightening the risk that its rate hikes will cause a recession later this year or next.

The surge in inflation and fear of a recession have eroded consumer confidence and stirred public anxiety about the economy, which is sending mixed signals.

Today, when the government estimates the gross domestic product for the second quarter, some economists think it may show that the economy shrank for a second straight quarter.

That would meet one assumption for when a recession has begun.

But economists say that wouldn’t necessarily mean a recession had started. During those same six months when the overall economy might have contracted, employers added 2.7 million jobs — more than in most entire years before the pandemic.

Wages also are rising at a healthy pace, with many employers still struggling to attract and retain enough workers.