| AP Economics Writer
, and reflects its strenuous efforts to slow price gains across the economy. 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.The Fed is tightening credit even while the economy has begun to slow, thereby heightening the risk that its rate hikes will cause a recession later this year or next.
At the same time, consumers are showing signs of cutting spending in the face of high prices. And business surveys suggest that sales are slowing. On Thursday, when the government estimates the gross domestic product for the April-June period, some economists think it may show that the economy shrank for a second straight quarter. That would meet one longstanding assumption for when a recession has begun.
That dilemma could become an even more consequential one for the Fed next year, when the economy may be in worse shape and inflation will likely still exceed the central bank’s 2% target.
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