Fed jacks up interest rates again, more hikes ahead

Central bank unveils 75-basis point increase, US stocks close slump after Powell’s remarks

WASHINGTON: The Federal Reserve (Fed) raised interest rates by three-quarters of a percentage point again on Wednesday and said its battle against inflation will require borrowing costs to rise further, yet signaled it may be nearing an inflection point in what has become the swiftest tightening of US monetary policy in 40 years.

The double-sided message left open the possibility the US central bank may raise rates in smaller increments in the future, ending its sequence of three-quarters-of-a-percentagepoint hikes as soon as December in favour of more tempered increases of perhaps half a percentage point, while also leaving policymakers room to continue pushing rates higher if inflation doesn’t start to slow.

Fed Chair Jerome Powell, speaking in a news conference after the end of the central bank’s latest policy meeting, said he wanted no confusion on that point: Even if policymakers do scale back future increases, he said, they were still undecided about just how high rates would need to rise to curb inflation, and were determined to “stay the course until the job’s done.”

Regardless of how fast the Fed moves, “there’s some ground to cover” for the target federal funds rate to reach a “sufficiently restrictive” level that will slow inflation, Powell said. The final destination is “very uncertain ... We’re going to find it over time.”

“The question of when to moderate the pace of increases is much less important than the question of how high ... and how long to keep monetary policy restrictive,“he said, adding that it was “very premature” to discuss when the Fed might pause its increases.

Investors were expecting a signal the Fed might ease up on its pace of tightening after a blistering run that raised the policy rate from near zero in March to what is now a range of between 3.75% and 4% – the fastest monetary tightening since the early 1980s.

The pace of the rate hikes has triggered global anxiety the Fed was dragging the world economy towards a point of no return, with the dollar’s strength against major currencies in effect exporting US inflation and stressing finiancial markets from London to Tokyo.

The Fed’s statement broadly acknowledged the need to assess the affect of the policy moves made so far in calibrating any future decisions.

“Ongoing increases in the target range will be appropriate,” the central bank’s policysetting Federal Open Market Committee said at the end of its two-day meeting.

The time to reassess the pace of increases “is coming,” Powell said. “It may come as soon as the next meeting or the one after that ... decision has been made.”