Chair Jerome Powell has said he anticipates additional rate increases throughout the year. But, depending on inflation's pace over the next month, that could change. If inflation improves significantly in August, the Fed may slow the rollout of interest rate hikes -- or, at least, raise interest rates by a smaller amount, compared to the two previous hikes. Experts worry that further increases to the cost of borrowing money could contract the economy too much, sending us into a recession: a shrinking, rather than growing, economy. The Fed acknowledges the adverse effects of this restrictive monetary policy. "We are highly attentive to inflation risks and determined to take the measures necessary to return inflation to our 2% longer run goal," Powell said during July's press conference. "This process is likely to involve a period of below-trend economic growth, and some softening in labor market conditions. But such outcomes are likely necessary to restore price stability and to set the stage for maximum employment and stable prices over the longer run." Raising interest rates is the main action the Fed can take to try to counter high inflation. When it costs more to borrow -- as with credit cards, mortgages and other loans -- consumers have less spending power and will buy fewer items, decreasing the "demand" side of the supply-demand equation, theoretically helping to lower prices (Cabello, 2022).
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