The Federal Reserve announced its most aggressive interest rate hike in more than two decades and said it would shrink its balance sheet in response to the excruciating inflation afflicting the economy.

Following a two-day meeting, the Federal Open Market Committee announced Wednesday that it would increase its interest rate target by half of a percentage point. The central bank typically raises rates by just a quarter of a percentage point, so the move signals that the Fed is highly concerned with the soaring prices.

Consumer prices increased by 8.5% for the 12 months ending in March, as measured by the Consumer Price Index, the fastest clip since 1981, during the Great Inflation. The inflation is rippling through all parts of the economy, although energy prices and food prices, in particular, have exploded over the past several months, hurting consumers by making staples such as gas and groceries increasingly more unaffordable.

During a press conference after the announcement, Fed Chairman Jerome Powell said the Fed has the “tools we need and the resolve it will take” to bring down inflation.

HOUSING AFFORDABILITY NEAR WORST ON RECORD AS FED BATTLES INFLATION

“The economy and the country have been through a lot over the past two years and have proved resilient,” Powell said. “It is essential that we bring inflation down if we are going to have a sustained period of strong labor market conditions that benefit all.”

The aggressive move by the Fed this week was expected, with investors already pricing in the half-point hike. Powell has been messaging that the move was coming over the past several weeks and has taken an increasingly hawkish tone when speaking about monetary policy.

Also Wednesday, the Fed announced it would begin shrinking its balance sheet by $60 billion in Treasuries and $35 billion in mortgage-backed securities each month. The central bank had previously been buying $120 billion of Treasury and mortgages securities each month in an effort to pump liquidity into the market and shore up the economy as the pandemic raged.

This likely isn’t the only meeting that the Fed will move more forcefully than usual with its monetary tools.

Investors are predicting more of the aggressive half-point rate hikes occurring at the Fed’s June and July meetings, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.

The Fed has two mandates from Congress: price stability and maximum employment. While the job market is booming and the unemployment rate is flirting with ultra-low prepandemic levels, the Fed now must depress spending in order to bring down prices.

There is fear among many economists that a recession is on the horizon because the Fed has waited so long to begin tightening its monetary policy and is now being forced to move much more rapidly in raising the federal funds rate.

In the Wall Street Journal’s regular survey of economists, a growing number now predict the Fed’s actions will result in a “hard landing,” which is the term used to describe the scenario where the Fed is unable to stave off inflation without plunging the economy into a recession.

Nearly 30% of those surveyed are now predicting a recession within the next 12 months, a figure that is up from 18% who said the same just months ago in January.

Powell himself has acknowledged that threading the needle on monetary policy and avoiding a recession will be a difficult proposition for the central bank.

The political ramifications of the Fed’s actions are also top-of-mind for President Joe Biden and the Republicans. Inflation is damaging Biden’s approval rating, which was above 53% a year ago. Now his approval rating is underwater, falling nearly 10%, according to FiveThirtyEight.

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As the midterm elections approach, Republicans will use the spiraling inflation as a weapon against the Democrats in their quest to wrest back control of both chambers of Congress.

Should the Fed’s more aggressive actions on monetary policy cause a recession, it would undoubtedly cause Republicans to further attack Biden and his fellow Democrats over their stewardship of the economy.