The US central bank raised benchmark interest rates by 25 basis points on Wednesday, marking the tenth consecutive time it raised rates since March 2022.
However, significantly, the Federal Reserve suggested that it may pause the rate hikes even as it monitors the course of the inflation battle. The Fed chairman also suggested it would be premature to expect any rate cuts in the near future as inflation remains high.
Rates Above 5%
The latest rate hike means that the US rates have gone past 5 percent, the first time it has done so since 2007. The current rate hike regime is also the most aggressive since the 1980s.
Federal Reserve Chairman Jerome Powell said the central bank is committed to bringing down inflation from the current annual rate of 5 percent to the target of 2 percent. "Inflation is going to come down not so quickly. It will take some time ... And in that world, if that forecast is broadly right, it would not be appropriate to cut rates," he said.
Fighting Inflation
The Federal Open Markets Committee said the latest hike could be the last before it reassesses the state of inflation. "Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation," the rate setting panel said.
"The Fed is no longer flagging that further hikes should clearly be expected, but this falls short of a strong commitment to 'pause' on rate hikes ... They are still talking about how they will determine the 'extent' of additional policy firming — not whether additional tightening is needed or not. The ongoing tightening of credit conditions is recognized, but they have still raised rates today and have left the window open for future hikes," said Brian Coulton, chief economist at Fitch, according to CBS News.
The Fed's aggressive moves to rein in inflation has been hurting the broader economy, especially sectors like housing. The Fed has been battling accusations that it has gone too quickly on monetary tightening. Fed chief Jerome Powell has denied the charges, saying instead that high inflation will inflict more pain on the economy.
In November, Powell said the fight against inflation is a long one. "It will take time, however, for the full effects of monetary restraint to be realised, especially on inflation ... It's very premature in my view to be thinking about or talking about pausing our rate hike. We have a ways to go," he said.
