WASHINGTON: The Federal Reserve on Wednesday raised interest rates by three-quarters of a percentage point as it continued to battle the worst outbreak of inflation in 40 years, but signaled future increases in borrowing costs could be made in smaller steps to account for the “cumulative tightening of monetary policy” it has enacted so far.
Fed Chair Jerome Powell said that change in pace could come as soon as the central bank’s next meeting in December, but he also cautioned that there remains extensive uncertainty about how high rates will need to go and they could well end up being higher than policymakers had estimated at their last meeting in September.
The time to reassess the pace of increases “is coming,” Powell said at his press conference following the decision by the policy-setting Federal Open Market Committee (FOMC) to increase rates by a three-quarter point margin for a fourth straight meeting.
“It may come as soon as the next meeting or the one after that,” Powell said. “No decision has been made. It is likely we will have a discussion about this at the next meeting.”
Fed unveils 75-basis-point rate hike
The new language in the US central bank’s latest policy statement took note of the still-evolving impact that its rapid pace of rate hikes has set in motion, and a desire to hone in on a level for the federal funds rate “sufficiently restrictive to return inflation to 2% over time.”
“Ongoing increases in the target range will be appropriate,” the FOMC said at the end of a two-day meeting. While not foreclosing any future decision, Fed officials said, “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
The language acknowledges the broad debate that has emerged around the Fed’s policy tightening, its impact on the US and world economies, and the danger that continued large rate hikes could stress the financial system or trigger a recession.