The Federal Reserve delivered its bluntest reckoning Wednesday of what it will take to finally tame painfully high inflation: Slower growth, higher unemployment and potentially a recession. Speaking at a news conference, Chair Jerome Powell acknowledged what many economists have been saying for months: That the Fed’s goal of engineering a “soft landing” — in which it would manage to slow growth enough to curb inflation but not so much as to cause a recession — looks increasingly unlikely. “The chances of a soft landing,” Powell said, “are likely to diminish” as the Fed steadily raises borrowing costs to slow the worst streak of inflation in four decades. “No one knows whether this process will lead to a recession or, if so, how significant that recession would be.” Before the Fed’s policymakers would consider halting their rate hikes, he said, they would have to see continued slow growth, a “modest” increase in unemployment and “clear evidence” that inflation is moving back down to their 2% target. “We have got to get inflation behind us,” Powell said. “I wish there were a painless way to do that. There isn’t.” Powell’s remarks followed another substantial three-quarters of a point rate hike — its third straight — by the Fed’s policymaking committee. Its latest action brought the Fed’s key short-term rate, which affects many consumer and business loans, to 3% to 3.25%. That’s its highest level since early 2008. Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier. Those declining prices at the gas pump might have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections. On Wednesday, the Fed officials also forecast more jumbo-size hikes to come, raising their benchmark rate to roughly 4.4% by year’s end — a full point higher than they had envisioned as recently as June. And they expect to raise the rate again next year, to about 4.6%. That would be the highest level since 2007. 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. In their quarterly economic forecasts, the Fed’s policymakers also projected that economic growth will stay weak for the next few years, with unemployment rising to 4.4% by the end of 2023, up from its current level of 3.7%. Historically, economists say, any time unemployment has risen by a half-point over several months, a recession has always followed. “So the (Fed’s) forecast is an implicit admission that a recession is likely, unless something extraordinary happens,” said Roberto Perli, an economist at Piper Sandler, an investment bank. Fed officials now foresee the economy expanding just 0.2% this year, sharply lower than their forecast of 1.7% growth just three months ago. And they envision sluggish growth below 2% from 2023 through 2025. Even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes volatile food and gas costs — to be 3.1% at the end of 2023, well above its 2% target. Powell warned in a speech last month that the Fed’s moves will “bring some pain” […]

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