WASHINGTON: The US Federal Reserve is pegged to make a fourth straight steep hike in the key interest rate this week as it battles surging costs, with its aggressive stance fueling expectations of a recession.
American households have been squeezed by soaring consumer prices, propelling economic issues to the top spot among voter concerns in upcoming midterm elections. Fed officials walk a tightrope to try and rein in prices while avoiding a downturn.
To raise borrowing costs and cool demand, the US central bank has already cranked up the benchmark lending rate five times this year, including three straight 0.75 percentage point raises. But with persistently high inflation and a tight labor market supporting wages and spending, analysts say another 0.75 point hike is almost certain at central bankers’ next policy meeting.
The policy-setting Federal Open Market Committee (FOMC) starts its two-day policy meeting on Tuesday, and all eyes are on signals that it may be ready to slow its campaign in the months ahead.
There will be a focus on whether the committee is confident of being “on track” toward a policy stance restrictive enough to manage inflation risks, a Barclays analysis said.
Fed may be alert to favoured yield curve alarm
Many economists expect the Fed to raise rates again by another half point in December.
Federal Reserve Chair Jerome Powell has made it clear that there is no “painless way” to cool the economy and avoid a repeat of the last time US inflation got out of control in the 1970s and early 1980s. It took tough action and a recession to bring prices down and the Fed is unwilling to give up its hard-won, inflation-fighting credibility.
“We’ve been told time and again that the Fed would continue to raise rates aggressively until it sees ‘compelling’ evidence that inflation is slowing down,” said Nancy Vanden Houten, US economist at Oxford Economics.
“I don’t think the data so far meets that standard,” she told AFP.
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