US policymakers voted to lift the Fed’s key rate by 0.75 percentage points, as widely expected, and their statement hinted at a new phase.
| Federal Reserve chairman Jerome Powell signalled he was prepared to slow down the pace of his campaign to tighten monetary policy, but the final level of interest rates might be higher than first expected.. The Fed unanimously decided to increase the benchmark federal funds rate to a target range of between 3.75 per cent to 4 per cent.Mr Powell said higher rates would be appropriate to tame inflation, meaning the path to avoiding a recession had “narrowed”.
“We have a ways to go,” Mr Powell said at a press conference after the rate decision. “The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job’s done.”“Incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.
Fed forecasts in September had implied a downshift to 0.50 percentage point in December, according to the median projection. Those projections showed rates reaching 4.4 per cent this year and 4.6 per cent next year, before cuts in 2024.“Core services inflation is moving up, and I think the inflation picture has become more and more challenging over the course of this year without question, and that means we have to have policy that is more restrictive and that narrows the path to a soft landing.
The interest rate rise comes ahead of the midterm elections next week, which could cost President Joe Biden’s Democrats control of Congress, amid voter anger over price pressures. Some prominent lawmakers in his party have started to publicly urge the Fed to show restraint.
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