Interest rates will surge, the housing market may crash, economic growth will slow to a crawl and millions more Americans will be out of work as part of the Federal Reserve's ongoing battle with inflation.

That is if everything goes to plan as the central bank tries to get inflation back to about 2% again.

"I wish there were a painless way to do that," Fed Chairman Jerome Powell said. "There isn't."

Powell's comments followed the rate-setting Federal Open Market Committee's Sept. 21 decision to hike its federal funds rate by 75 basis points, bringing the target for the benchmark rate to between 3% and 3.25%. Since March, the Fed has boosted rates by 300 basis points, including three straight 75-basis-point hikes, after leaving them near 0% for roughly two years in response to the pandemic.

Powell gave no indication during his press conference that central bank officials had any plans to slow down this push for higher rates and said with this latest 75-bps hike, the Fed may now be at just the "very lowest level" of what may be considered restrictive monetary policy.

"There's a ways to go," Powell said.

Dire forecasts

This is clear in the forecasts from Fed officials included in a summary of economic projections that was released shortly before Powell's press conference.

The median forecast among FOMC officials is for the federal funds rate to end 2022 at 4.4%, equating to 125 bps in hikes over the next two meetings and 100 bps higher than central bank officials' forecast just three months ago. The median forecast also shows the federal funds rate ending 2023 at 4.6%, a clear signal that Fed officials plan to continue to hike through next year as inflation has remained at levels not seen in 40 years in spite of a historically aggressive tightening of policy.

"Their greatest fear is that inflation becomes entrenched," said Patrick Leary, a senior trader with Loop Capital Market. "What Powell is realizing is that the only way they avoid that is by torpedoing the economy."

The Fed's median 2022 forecast for the personal consumption expenditures price index, the Fed's preferred measure of inflation, is now at 5.4%, up from 2.6% in December 2021.

Soft landing unlikely

In addition, the median forecast for real GDP growth this year fell to 0.2%, down from 4% in December, while unemployment is forecast to climb to 3.8% this year and 4.4% in 2022. The unemployment rate has never increased by more than 0.5% from its low point during the previous 12 months without a recession occurring.

"It's becoming clear that we'll have to sacrifice some growth and job market progress to manage inflation," said Callie Cox, a U.S. investment analyst at eToro. "But as the days go on, the margin of error between a slowdown and a recession is dwindling."

Powell seemed to offer his strongest warning of a looming recession to date, cautioning that the likelihood of a "soft landing" would decline if the Fed needed to keep policy restrictive much longer.

In his comments, Powell repeatedly said the Fed was committed to getting inflation down to 2% since failure to do so would result in "greater pain later on." The personal consumption expenditures price index, the Fed's preferred inflation gauge, rose 6.3% year over year in July, with data for August due out on Sept. 30.

The federal funds rate could "easily" run up to 5% if the Fed's effort continue to make little impact on inflation, said Cox with eToro.

With Powell giving no hint that the central bank could pivot to cut or even pause rate hikes, stocks dipped and volatility soared.

The CBOE Volatility Index, widely referred to as the market's fear gauge, on Sept. 21 settled at its highest point since mid-June. The S&P 500 dropped more than 1.7% on the day and has fallen nearly 21% since it closed at its all-time high on Jan. 3.

Investors are shaken by the outlook for a longer environment of high rates, Cox said.

Treasury yields have also surged this year as the Fed has boosted rates and stopped its bond buying.

The yield on the 10-year Treasury hit its highest point since 2011 this week, while several portions of the yield curve have further inverted, a recession signal.

"Real rates are above 1% for all tenors, the yield curve is inverted, the dollar is strong and this is a fast-moving global tightening cycle," said Kathy Jones, managing director and chief fixed-income strategist with the Schwab Center for Financial Research. "It's hard for me to see that this won't result in a global recession."