Fed signals potential slowdown in interest rate hikes as early as December

  • The Fed raised interest rates by 0.75 percentage points on Wednesday.
  • But Fed Chairman Jerome Powell has signaled that the increases could subside as early as next month.
  • Still, it’s unclear how long the increases will actually last and what their impact on the economy will be.

The Federal Reserve has raised interest rates yet again – and now the US economy has to wait and see how much longer the increases will continue.

On Wednesday, the central bank decided at its Federal Open Market Committee (FOMC) meeting that it would raise interest rates by 0.75 percentage points, the fourth consecutive time the Fed has raised rates on this scale. These aggressive hikes are part of the Fed’s strategy to reduce inflation levels by slowing the economy, and despite fears that too aggressive action could trigger a recession, Fed Chairman Jerome Powell has supported the strategy during his remarks on Wednesday.

“Restoring price stability is essential to set the stage for achieving maximum employment and long-term stable prices,” Powell said. “The historical record strongly cautions against premature policy easing. We will stay the course until the job is done.”

But, as he said, it may soon be time to slow the pace of these increases.

“It will become appropriate to slow the pace of increases as we approach the level of interest rates that will be restrictive enough to bring inflation back to our 2% target,” Powell said. “So that moment comes and it may come as soon as the next meeting or the one after, no decision has been made,” he added.

Although he suggested returning to smaller hikes as early as next month, Powell also noted that the Fed would continue to raise rates until inflation was brought under control. “Data received since our last meeting suggests that the ultimate level of interest rates will be higher than expected,” he also said.

These hikes have already made borrowing more expensive for Americans – 30-year fixed-rate mortgages have risen to 7%, credit card rates will soon rise from the current 19%, and auto loans will likely become more expensive. .

Some lawmakers and economists have warned that continuing to hike rates could lead to a recession and job losses. Meanwhile, the Fed aims to achieve a “soft landing,” in which it can continue to raise interest rates just enough to fight inflation, but not enough to cause a recession. Although Powell said a soft landing was still possible, it is now more difficult.

“We always said it was going to be tough,” he said, adding that “to the extent that rates need to rise longer and stay higher longer, that trajectory has narrowed.”

Despite fears of a recession, the White House backed the central bank’s method of tackling rising prices across the country. Press secretary Karine Jean-Pierre said during a briefing on Wednesday that “Fed actions are helping to bring inflation down.”

“This is part of our transition to stable and steady growth,” she added.

But alongside concerns that the Fed is acting too aggressively on the part of lawmakers such as Massachusetts Sen. Elizabeth Warren and Senate Banking Chairman Sherrod Brown, AFL-CIO President Liz Shuler said in a statement that Wednesday’s Fed hike “will have a direct and detrimental impact on workers and our families.”

“A recession would instead force businesses to hire fewer people, making it harder for young workers, workers of color and others who have greater barriers to find employment, and putting downward pressure on the wages of all workers who will bear the brunt of hyperactive monetary policy,” she said. “Rising interest rates send a signal to workers that the government thinks we have too much money and that we should have less to spend.”

Powell backed the increases, but said they could soon come on a lesser scale to hopefully stave off a recession.

“I don’t feel like we’ve tightened up too much or moved too fast,” he said. “I think it’s a good program and a success that we’ve gotten this far so fast. Remember though that we still think there is a need to increase rates going forward and we have some way to go. to cover here, and we will cover it.”

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