US Federal Reserve unleashes another big rate hike but hints at a pullback
The US Federal Reserve has pumped up its benchmark interest rate by three-quarters of a point for a fourth straight time but hinted that it could soon reduce the size of its rate hikes.
The Fed’s move raised its key short-term rate to a range of 3.75 per cent to four per cent, its highest level in 15 years. It was the US central bank’s sixth rate hike this year — a streak that has made mortgages and other consumer and business loans increasingly expensive and heightened the risk of a recession.
But in a statement, the Fed suggested that it might soon shift to a more deliberate pace of rate increases. It said that in coming months it would consider the cumulative impact of its large rate hikes on the economy. It noted that its rate hikes take time to fully affect growth and inflation.
Those words indicated that the Fed’s policymakers may think borrowing costs are getting high enough to possibly slow the economy and reduce inflation. If so, that would suggest that they may not need to raise rates as quickly as they have been doing.
The Fed’s statement on Wednesday (Thursday AEDT) was released after its latest policy meeting. Many economists expect Chair Jerome Powell to signal at a news conference that the Fed’s next expected rate hike in December may be only a half-point rather than three-quarters.
Typically, the Fed raises rates in quarter-point increments.
But after having miscalculated in downplaying inflation last year as likely transitory, Powell has led the Fed to raise rates aggressively to try to slow borrowing and spending and ease price pressures.
Wednesday’s rate increase coincided with growing concerns that the Fed may tighten credit so much as to derail the economy.
The US government has reported that the economy grew last quarter, and employers are still hiring at a solid pace.
But the housing market has cratered, and consumers are barely increasing their spending.
