US Federal Reserve expected to slow rate hikes in signal work’s not over

FEDERAL Reserve officials look set to moderate interestrate increases again, with Chair Jerome Powell keeping further hikes on the table while leaning against bets they will cut later this year. The policy-setting Federal Open Market Committee is widely expected to raise rates by 25 basis points at the conclusion of its two-day meeting Wednesday, bringing its benchmark to a target range of 4.5 percent to 4.75 percent. The move would be another downward step for officials, who increased rates by 50 basis points in December, following four 75 basis-point hikes last year.

With no update at this meeting to their economic projections, Fed officials will rely on their statement and Powell’s press conference to hammer home the message that their work is not done.

“Where there is a market disconnect is that the Fed keeps saying over and over again—and these are doves and hawks alike—that the policy rate is likely to stay at peak for quite some time,” said Ellen Zentner, chief US economist for Morgan Stanley.

The decision will be announced at 2 p.m. in Washington and the chair will speak to reporters 30 minutes later.

Recent economic reports suggest price pressures are easing and growth is cooling—all signs that the US economy is responding to the Fed’s aggressive rate increases as policymakers work to tame inflation. But a still-tight labor market could add more pressure on the Fed to extend its tightening campaign or hold rates at restrictive levels for longer.

Peak near?

POLICYMAKERS say they think rates need to get above 5 percent and then stay there to give the higher borrowing costs time to travel through the economy.

One thing to watch for is whether Powell refers to Fed forecasts released in December, which showed that officials saw rates rising to a median of 5.1 percent this year, as an accurate measure for where they see rates headed now, said Jonathan Pingle, the chief US economist for UBS Group AG.

There may be clues in how Powell talks about recent inflation data, which showed that prices are cooling faster than officials expected. The personal consumption expenditures index rose by 5 percent in December from a year earlier, the slowest pace since 2021 but still well above the Fed’s 2 percent target.

“They’re getting incrementally more confident that inflation is peaking, but I think it’s much too soon” to signal that a pause is near, said Pingle.