WASHINGTON (AP) — Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate Wednesday by a substantial three-quarters of a point for a third-straight time and signalled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.

The Fed’s move boosted its benchmark short-term rate, which affects many consumer and business loans, to a range of 3 per cent to 3.25 per cent, the highest level since early 2008.

The officials also forecast that they will further raise their benchmark rate to roughly 4.4 per cent by year’s end, a full point higher than they had envisioned as recently as June. And they expect to raise the rate again next year, to about 4.6 per cent. That would be the highest level since 2007.

By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3 per cent in August compared with a year earlier. Those declining prices at the gas pump might have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections.

Speaking at a news conference, Chair Jerome Powell said that before Fed officials would consider halting their rate hikes, they would “want to be very confident that inflation is moving back down” to their 2% target. He noted that the strength of the job market is fueling pay gains that are helping drive up inflation.

And he stressed his belief that curbing inflation is vital to ensuring the long-term health of the job market.

“If we want to light the way to another period of a very strong labor market,” Powell said, “we have got to get inflation behind us. I wish there was painless way to do that. There isn’t.”

Fed officials have said they are seeking a “soft landing,” by which they would manage to slow growth enough to tame inflation but not so much as to trigger a recession. Yet most economists are skeptical. They say they think the Fed’s steep rate hikes will lead, over time, to job cuts, rising unemployment and a full-blown recession late this year or early next year.

“No one knows whether this process will lead to a recession, or if so, how significant that recession would be,” Powell said at his news conference. “That’s going to depend on how quickly we bring down inflation.”

In their updated economic forecasts, the Fed’s policymakers project that economic growth will remain weak for the next few years, with rising unemployment. They expect the jobless rate to reach 4.4 per cent by the end of 2023, up from its current level of 3.7 per cent. Historically, economists say, any time unemployment has risen by a half-point over several months, a recession has always followed.

Fed officials now foresee the economy expanding just 0.2 per cent this year, sharply lower than their forecast of 1.7 per cent growth just three months ago. And they envision sluggish growth below 2 per cent from 2023 through 2025.

Even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes the volatile food and gas categories — to be 3.1 per cent at the end of next year, well above its 2 per cent target.

Powell acknowledged in a speech last month that the Fed’s moves will “bring some pain” to households and businesses. And he added that the central bank’s commitment to bringing inflation back down to its 2 per cent target was “unconditional.”

Short-term rates at a level the Fed is now envisioning would make a recession likelier next year by sharply raising the costs of mortgages, car loans and business loans. Last week, the average fixed mortgage rate topped 6 per cent, its highest point in 14 years, which helps explain why home sales have tumbled. Credit card borrowing costs have reached their highest level since 1996, according to Bankrate.com.

Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession. On Sunday, Biden said on CBS‘ 60 Minutes that he believed a soft landing for the economy was still possible, suggesting that his administration’s recent energy and health care legislation would lower prices for pharmaceuticals and health care.

The law may help lower prescription drug prices, but outside analyses suggest it will do little to immediately bring down overall inflation. Last month, the nonpartisan Congressional Budget Office judged it would have a “negligible” effect on prices through 2023. The University of Pennsylvania’s Penn Wharton Budget Model went even further to say “the impact on inflation is statistically indistinguishable from zero” over the next decade.

Even so, some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than necessary to tame inflation. Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases — a key driver of inflation — are levelling off and by some measures even declining a bit.

Surveys also show that Americans are expecting inflation to ease significantly over the next five years. That is an important trend because inflation expectations can become self-fulfilling: If people expect inflation to ease, some will feel less pressure to accelerate their purchases. Less spending would then help moderate price increases.

The Fed’s rapid rate hikes mirror steps that other major central banks are taking, contributing to concerns about a potential global recession. The European Central Bank last week raised its benchmark rate by three-quarters of a percentage point. The Bank of England, the Reserve Bank of Australia and the Bank of Canada have all carried out hefty rate increases in recent weeks.

And in China, the world’s second-largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If recession sweeps through most large economies, that could derail the US economy, too.

Even at the Fed’s accelerated pace of rate hikes, some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.

Many economists sound convinced that widespread layoffs will be necessary to slow rising prices. Research published earlier this month under the auspices of the Brookings Institution concluded that unemployment might have to go as high as 7.5 per cent to get inflation back to the Fed’s 2 per cent target.

“The risk is that the Fed acts more aggressively in its mission to return inflation back to its 2 per cent objective, pushing the funds rate higher than previously expected and keeping it higher for longer,” Nancy Vanden Houten, lead US economist at Oxford Economics, said Wednesday after the Fed’s meeting.