The stock market has had one of its worst weeks this year, with prices sliding across the board.

The central issue for investors is how far the Fed will need to go as it looks to break the cycle of inflation hitting the American economy.

Inflation has taken on a pervasive nature, amplified by companies facing pressure from workers to increase wages as they grapple with the rising cost of living.

Inflation in the United States has been on the rise since last year, as businesses have reopened and pent-up consumer demand has been released. This has put pressure on companies to raise wages in order to keep up with the rising cost of living. As a result, inflation expectations have become embedded in the economy, and a recession may be the only way to break them.

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The Fed's primary tool to control inflation is its benchmark interest rate, which it has already raised from near zero in March.

Investors have raised their forecasts for how much the Fed will need to raise interest rates by and how long the central bank will keep them high for, foretelling more pain for companies, lower stock prices and higher unemployment.

The Federal Reserve's main tool to control inflation is the federal funds rate, which it has already increased from near zero in March. The federal funds rate is the rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. The target range for this rate is currently 2.25-2.50%.

Investors have raised their forecasts for how much the Fed will need to raise interest rates by and how long the central bank will keep them high for, foretelling more pain for companies, lower stock prices and higher unemployment. According to a recent article in The Wall Street Journal, "Fed officials have said they expect to raise rates three times in 2018 and 2019 combined—a pace that would be similar to 2017’s three hikes—and then stop." However, investors are now expecting the Fed to raise rates four times in 2018 and 2019.

One reason why investors are expecting the Fed to raise rates more than previously thought is because of inflation. Inflation has taken on a pervasive nature, amplified by companies facing pressure from workers to increase wages as they grapple with the rising cost of living. As a result of these factors, many investors believe that the Fed will need to raise interest rates more than previously thought in order to keep inflation under control.

Another reason why investors are expecting the Fed to raise interest rates more than previously thought is because of President Trump's policies. President Trump's policies are expected to boost economic growth in the short-term but could also lead to higher inflation down the road. As a result, many investors believe that the Fed will need to raise interest rates more than previously thought in order prevent inflation from getting out of control.

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Prices in futures markets that indicate forecasts for interest rates show an expected increase of three-quarters of a percentage point to be administered by the Fed when the central bank's governors meet next week.

Overall, futures point to a peak in rates of 4.25 to 4.5 percent next year, a full 2 percentage points higher than the Fed's current policy level.

The central issue for investors is how far the Fed will need to go as it looks to break the cycle of inflation hitting the American economy, which began last year as a result of the reopening of businesses and pent-up consumer demand. Tuesday's inflation report showed it has now taken on a pervasive nature, amplified by companies facing pressure from workers to increase wages as they grapple with the rising cost of living.

"What we are faced with is inflation expectations that are pretty embedded," said Seth Bernstein, the president and chief executive of AllianceBernstein, a fund manager with more than $600 billion in assets. "A recession is the only way to 'break' them."

The Fed's primary tool to control inflation is its benchmark interest rate, which it has already raised from near zero in March to a range of 2.25 percent to 2.5 percent and is expected to raise them again next week.

Investors have raised their forecasts for how much the Fed will need to raise interest rates by and how long the central bank will keep them high for, foretelling more pain for companies, lower stock prices and higher unemployment.

Prices in futures markets that indicate forecasts for interest rates show an expected increase of three-quarters of a percentage point at least, which would mark a hefty move not made since 1984 when financial markets could drop further. The overall expectation in these markets points to a peak in rates of 4.25%to 4.5% next year; this is full 2 percentage points higher than what the Fed’s current policy level suggests. This raises serious questions about whether or not such aggressive tactics are necessary given that they might do more harm than good at this stage in America’s economic recovery process post-pandemic.

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