The US Federal Reserve is raising interest rates again citing smaller rate hikes

Federal Reserve officials signaled that their aggressive campaign to contain inflation could be entering its final phase, even as they delivered their fourth straight 75 basis point rate hike.

While central bankers said “ongoing hikes” will likely still be needed to bring interest rates to levels “sufficiently restrictive to bring inflation back to 2 percent over time,” they added after their statement added a new language to the two-day meeting in Washington.

“The pace of future increases” in the cost of borrowing would take into account the cumulative tightening of monetary policy, the lag with which it affects the economy and developments in economics and finance, they said.

The Federal Open Market Committee’s new comment comes amid still-strong inflation and jobs numbers, even as sectors like housing and manufacturing have slowed significantly.

The addition will fuel speculation that Fed Chair Jerome Powell and colleagues will slow the pace of rate hikes as many Wall Street economists expect to dial down to a 50 basis point hike at their next meeting in December.

In financial markets, swap traders trimmed the level of pricing for the December policy meeting, pushing where they see the peak for the cycle down to below 5% from around 5.05% earlier.

Two-year Treasury yields collapsed as the S&P 500 stock index rallied and the dollar index fell.

The unanimous decision raises the target for federal interest rates to a range of 3.75 percent to 4 percent, the highest level since 2008.

The statement firmly committed policymakers to their campaign to contain inflation, but acknowledged that rate hikes have a lag.

Officials fighting to curb inflation, which is nearing a 40-year high, rallied days before the US congressional midterm elections, where anger over price pressures was a dominant theme.

The outcome of the Nov. 8 vote could cost President Joe Biden’s Democrats control of Congress, and some prominent lawmakers in his party have begun publicly urging the Fed to exercise restraint. Powell, for his part, has tried to keep the central bank out of the political fray.

Officials said, as expected, they will continue to reduce their holdings of government bonds and mortgage-backed securities as planned — at a pace of about $1.1 trillion a year.

The higher interest rates rise, the harder the Fed’s job becomes. Officials, who have been criticized for overlooking the persistence of the inflation spurt, know that monetary policy works with a lag and that the tighter it gets, the more it curbs not only inflation, but economic growth and hiring as well.

The Fed forecasts in September implied a cut to 50 basis points in December according to the median forecast. Those projections showed rates hitting 4.4 percent this year and 4.6 percent next year before being cut in 2024.

The Fed’s most aggressive tightening campaign since the 1980s is beginning to cool some parts of the economy, particularly in housing. But policymakers have yet to see any meaningful progress on inflation. The US Federal Reserve is raising interest rates again citing smaller rate hikes

Fry Electronics Team

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