Commentary
Financial markets sank when the Federal Reserve (Fed) added 0.75 percentage points to its benchmark federal funds rate on Sept. 21. Markets, having anticipated just this rate increase, responded less to it than to what Fed Chairman Jerome Powell promised for the future. He not only indicated additional rate hikes, but revealed how ready policymakers are to risk recession.
Forecasts from the Fed’s Open Market Committee (FOMC) tell the story. Those projections put the target federal funds interest rate at 4.5 percent by year-end. That is more than a full percentage point above today’s level. More telling is how this forecasted rate has risen over time. Last December, when Fed Chairman Jerome Powell was still describing inflationary pressure as “transitory,” the Fed forecast that the rate would be 0.9 percent at year-end 2022. Last June, the forecast upped the number to 3.4 percent. Now it has approached 4.5 percent….