News - Another big Fed rate hike is here to battle inflation. Economy hangs in balance

With prices rising at their fastest pace in a generation, the Federal Reserve is ratcheting up its fight against inflation.

On Wednesday, the Fed raised its benchmark interest rate by an additional three-quarters of a percentage point. This is the fourth time the central bank has raised rates this year.

It follows an increase of the same size in June — rate hikes at this pace and magnitude have not occurred since the late 1980s.

Despite these fast and furious moves, the central bank has its work cut out for it. Its goal is to rein in inflation without kickstarting a recession.

"The labor market is extremely tight, and inflation is much too high," Fed Chair Jerome Powell said at a news conference, where he explained the "unusually large" move up in rates.

He and his colleagues are trying to fight inflation by tackling demand. They are pushing up the cost of of credit — what consumers and companies pay to borrow money — and they are trying to deal with a jobs market the Fed chair has called "unsustainably hot," where wages are rising fast because many businesses are paying more to find workers.

In a statement, the Fed said that some parts of the economy — like spending and production — have weakened. However, it noted that "job gains have been robust in recent months, and the unemployment rate has remained low."

The key goal, of course, is to fight inflation, which remains elevated at 9.1%, the highest in four decades. The Fed noted that pandemic's supply chain issues have continued to push prices and the Russia-Ukraine war is adding additional pressure on food and energy prices.

"My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing and transportation," Powell said.

Powell stressed that it was a time of great uncertainty in the economy. However, he's clearly trying to achieve what economists call a "soft landing" for the economy.

To do that, the Fed is ratcheting up interest rates. But this isn't a precise or painless process. As policymakers continue to raise rates, growth will slow further, and the unemployment rate, which is close to its pre-pandemic low, will rise.

The Fed would like those adjustments to happen in a measured way, but that is easier said than done.

In June, inflation rose by 9.1% from a year earlier, and the Fed is tackling a problem that is shaped by factors outside of its control.

The central bank is equipped to deal with demand, which surged as the U.S. emerged from the darkest days of the pandemic, but it can't fix supply chain issues or end the war in Ukraine, both of which have led to higher prices, especially of gasoline and food.