US recession a growing fear as Fed plans to keep rates high

WASHINGTON (AP) — After scaling 40-year highs, inflation in the United States has been slowly easing since summer. Yet the Federal Reserve seems decidedly unimpressed — and unconvinced that its fight against accelerating prices is anywhere near over.

On Thursday, stock markets buckled on the growing realization that the Fed may be willing to let the economy slide into recession if it decides that's what's needed to drive inflation back down to its 2% annual target.

The S&P 500 stock index lost roughly 100 points — 2.5% — in its worst day since early November. The losses came a day after the Fed raised its benchmark interest rate for the seventh time this year. The half-point hike the Fed announced — to a range of 4.25% to 4.5% — had been widely expected.

What spooked investors was Wall Street’s growing understanding of how much further the Fed seems willing to go to defeat high inflation. In updated projections they issued Wednesday, the Fed's policymakers forecast that they will ratchet up their key rate by an additional three-quarters of a point — to a hefty 5% to 5.25% — and keep it there through 2023. Some Fed watchers had expected only an additional half-point in rate hikes.

Those higher rates will mean costlier borrowing costs for consumers and companies, ranging from mortgages to auto and business loans.

The policymakers also downgraded their outlook for economic growth in 2023 from the 1.2% they had forecast in September to a puny 0.5% — as near to a recession forecast as they were likely to make. What's more, they raised their expectation for the unemployment rate next year to 4.6% from 3.7% now.

All of which suggested that the officials expect — or at least would accept — an economic downturn as the price of taming inflation.

The message the Fed was...