When it concludes its final policy meeting on Wednesday afternoon, the Fed is expected to impose a second consecutive three-quarter hike in benchmark interest rates, raising it to a range of 2.25% to 2.5%. It will be the Fed’s fourth rate hike since March. Since then, with inflation hitting new four-decade highs, the central bank has tightened credit ever more aggressively. A press conference by Chairman Jerome Powell on Wednesday — and whatever messages, if any, he sends about the Fed’s next steps — will attract intense interest. By raising lending rates, the Fed makes it more expensive to get a mortgage or car or business loan. In turn, consumers and businesses will likely borrow and spend less, cooling the economy and slowing inflation. The Fed’s hikes have already caused the average rate on a 30-year fixed mortgage to double last year, to 5.5 percent, and home sales have fallen. The central bank is betting it can slow growth enough to tame inflation but not enough to trigger a recession — a risk many analysts fear could end badly. Some analysts point to signs that the economy is slowing and may even have contracted in the first half of the year. As a result, they worry that the Fed could end up tightening credit too much, too quickly, and end up causing a recession that would lead to layoffs and rising unemployment. Meanwhile, rising inflation and fears of a recession have eroded consumer confidence and fueled public concern about the economy, which is sending disappointingly mixed messages. With November’s midterm elections looming, American discontent has dented President Joe Biden’s public approval ratings and raised the possibility that Democrats will lose control of the House and Senate. On Thursday, when the government estimates gross domestic product for the April-June period, some economists believe it may show the economy contracted for a second straight quarter. This would satisfy a long-held hypothesis about when a recession will begin. But economists say that would not mean a recession had begun. During those same six months when the economy may have contracted, employers added 2.7 million jobs — more than they had gained in most entire years before the pandemic. Wages are also growing at a healthy pace, with many employers still struggling to attract and retain enough workers. The most widely accepted definition of a recession is that set forth by the National Bureau of Economic Research, a group of economists whose Business Cycle Advisory Committee defines a recession as “a significant decline in economic activity that is spread throughout the economy and lasts longer than from a few months.” The committee evaluates a number of factors before publicly declaring the death of an economic expansion and the birth of a recession — and often does so well after the fact.
