The Fed hiked interest rates by 0.75 points for the fourth time in a row

The Federal Reserve hiked interest rates by 0.75 percentage points for the fourth consecutive day on Wednesday as it ramps up its long-running battle to bring down persistently high US inflation.

The Federal Open Market Committee unanimously voted to raise the federal funds rate to a new target range of 3.75 percent to 4 percent after its most recent two-day meeting. The fourth straight rate hike comes as the US Federal Reserve seeks to stamp out price pressures in an economy that is proving more resilient than expected amid its monetary tightening campaign.

In a statement, the US Federal Reserve said “ongoing hikes” in interest rates were needed to have a “sufficiently restrictive” effect on the economy to bring inflation back to the Fed’s long-term target of 2 percent.

The Fed’s decision to press ahead with another outsized rate hike comes amid mounting evidence that the most acute inflationary problem in decades is not abating. This is despite signs that consumer demand is beginning to cool and the housing market has slowed significantly under the weight of rising mortgage rates, which rose to over 7 percent last week.

Data released since the September gathering show that consumer price growth has accelerated again across a wide range of goods and services, suggesting that underlying inflationary pressures are firming. The job market also remains very tight, with strong wage growth and a renewed increase in job vacancies.

Wednesday’s decision pushed the federal funds rate further into “restrictive” territory, meaning it will dampen economic activity more.

Given how far the Fed has hiked rates already – from near zero as recently as March – senior officials and economists are having increasingly urgent discussions about when the Federal Reserve should slow the pace of its rate hikes, especially since changes in monetary policy are ongoing Time to filter through the economy.

The Fed first introduced the notion of an “eventual” slowdown in July, and forecasts released at the September meeting suggest such a move will be supported in December. At the September meeting, most officials forecast that the fed funds rate would hit 4.4 percent by the end of the year, indicating a move down to a half-point rate hike next month.

Economists fear that by extending its aggressive tightening program, the Fed risks triggering a worse-than-needed economic downturn and instability in financial markets. Some Fed watchers warn that the recent trouble spots in the UK Treasury market, which required intervention from the Bank of England, are a cautionary tale.

Democratic lawmakers have also urged the Fed to back off its aggressive stance.

However, Fed Chair Jay Powell will be under pressure to reassure economists and investors that slowing the pace of rate hikes does not mean less commitment to combat price pressures. To that end, many economists expect the Fed to eventually support rate hikes that exceed the peak level of 4.6 percent planned for September. A policy rate of at least 5 percent is now expected to be needed to tame inflation.

https://www.ft.com/content/2fba4664-a496-4a5b-820e-f258b3e2bd81 The Fed hiked interest rates by 0.75 points for the fourth time in a row

Adam Bradshaw

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