The central bank hopes to curb spending, investment and borrowing in order to cool off further price increases.
Battling inflation that remains at four-decade highs, the Federal Reserve said Wednesday it hiked its key interest rate by another 0.75%.
"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the Fed said in its statement Wednesday. It added it is "strongly committed to returning inflation to its 2% objective."
The rate hikes this year have unfolded against the backdrop of a consumer price index that has remained elevated. In September, it clocked in at 8.2% on an annual basis. Food and energy price increases were higher. Even stripped of those two items, whose price swings tend to be more volatile, the index saw its largest increase since 1982.
In a press conference following the release of the central bank's statement, Fed Chairman Jerome Powell said Americans can expect more rate increases, though perhaps not of the same magnitude as the most recent ones.
"There is significant uncertainty around that level of interest rates," he said. "Even so, we still have some ways to go, and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”
The central bank’s key federal funds rate affects the cost of borrowing and the pace of investment throughout the economy. Since March, the Fed’s rate-hiking has helped make borrowing and investing more expensive, the purpose of which is intended to slow the economy and moderate price increases.
The rate hike is the sixth consecutive one this year for the Fed, a cycle not seen since the inflation-fighting days of the early 1980s. The central bank has been bedeviled by stubbornly high inflation readings even as other factors that had been influencing price increases, like higher gas and energy prices, have cooled off.
As a result, some experts believe the Fed must keep raising interest rates, even if it drives unemployment higher. The Fed's dual mandate dictates it must balance inflation and employment. Writing in The Washington Post this week, former U.S. Treasury Secretary Larry Summers called on Fed Chair Jerome Powell to maintain an aggressive stance on rate hikes, even if it causes job losses in the short term.
Summers predicted unemployment would have to rise above 4.4% to get inflation under control. The U.S. unemployment rate currently stands at 3.5%.
"For more than a decade, from 1966 to 1979, policymakers failed to do what was necessary to contain inflation because they shrank from the immediate consequences of restrictive policy," Summers wrote. "History remembers them poorly."
But debate has been ongoing concerning whether the Fed's posture is now too aggressive, given other signs of weakening in the economy. That includes the fastest deceleration in home price growth on record as mortgage rates soar to more than 7% — the highest in 20 years.
Other interest rates, like those for auto loans and credit cards, are at highs not seen in more than a decade, meaning higher car payments and higher interest fees if you're carrying a balance on your credit card. Another measure of inflation, personal consumption expenditures, has slowed over the past three months, when excluding vola