Fed expected to hike interest rates Wednesday

By Sylvan Lane

The Federal Reserve is racing to get inflation under control and pull back stimulus for an overheated economy with a double dose of rate hikes expected on Wednesday. The Fed’s monetary policy panel is expected to announce a 0.5 percentage point rate hike Wednesday, twice the size of a typical interest rate increase, as the bank rushes to get in front of rising prices….“What you try to do when you slow growth is reduce demand and that drops prices. How much it can drop prices when you already have abnormal supply shortages has never been tested before,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics. “The Fed can maybe make some difference, but the more of a difference it makes in demand, the more painful the recessionary risk becomes. That’s why this is so hard.”  Petrou is among many Fed-watchers who feared the bank ignored clear signs last year that inflation would not be “transitory,” as Powell often said, but had spread into areas of the economy largely unaffected by supply chain issues. While most of the initial bust of inflation came from a national automobile and computer chip shortage, prices for food, shelter, health care and other services have risen far faster in recent months.  “I don’t understand what was wrong with their models and I think it’s because they got the answer they wanted, which is a terrible way to think about the economy,” Petrou said.