Washington (AFP) - The Federal Reserve delivered another steep interest rate increase on Wednesday, as expected, with its move to cool red-hot inflation taking on more weight amid the political maelstrom of key US midterm elections.
With high inflation squeezing American families of all political stripes, President Joe Biden faces a battle to avoid losing control of both chambers of Congress.
The Fed's aggressive rate hikes this year so far have not had a noticeable impact on prices, but they have stoked fears of an impending recession even as the job market remains strong.
The US central bank raised the benchmark lending rate by 0.75 percentage point -- the fourth straight increase of that size and the sixth hike this year -- in its all-out battle to tame inflation not seen since the 1980s.
The latest three-quarter percentage point increase takes the benchmark lending rate to 3.75-4.0 percent, the highest since January 2008.
By making it more costly to borrow, policymakers aim to put the brakes on spending and bring demand more into balance with supply that has been battered by global supply issues and the ongoing Russian war in Ukraine.
While the US housing market has cooled sharply amid higher interest rates, key inflation measures show prices continue to rise and the labor market remains tight, with job openings rising and private hiring accelerating in October.
The policy-setting Federal Open Market Committee (FOMC) said more rate increases will be needed to tamp down rising prices but it will take into consideration the impact on the economy when deciding on the pace of future moves -- opening the door to the possibility it will implement smaller steps in coming months.
But Fed Chair Jerome Powell cautioned that policymakers are not yet ready to halt their efforts.
"It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation," Powell told reporters.
"It's very premature in my view to be thinking about or talking about pausing our rate hike.We have a ways to go."
But he said the committee could begin discussing the possibility of slowing the aggressive pace of rate increases at the December meeting, but ultimately might have to increase the level higher than expected to achieve the goal of bringing inflation down to two percent.
Slower growth
As central bankers walk a tightrope fighting inflation while avoiding tipping the economy into a recession, politicians are ramping up pressure on Fed officials.
Powell acknowledged that bringing inflation down is "likely to require below-trend growth," and that the window to achieve a soft landing -- slowing inflation while avoiding a downturn -- has narrowed.
Biden is facing growing voter frustration over high inflation and there are signals in polling that a "red wave" could sweep the opposition Republicans to power in the House and Senate.
Republicans put the blame for inflation and slower growth squarely on Biden, while the president's Democrats worry the Fed moves will lead to higher unemployment.
But Powell has argued that allowing high inflation to become entrenched would inflict even more pain on American families and workers.
In his press conference Wednesday, Powell dismissed criticism that the central bank had moved too quickly, and said the outlook for the world's largest economy is highly uncertain.
"No one knows whether there's going to be a recession or not, and if so, how bad that recession would be," he said.
White House spokesperson Karine Jean-Pierre said the Fed moves are "part of our transition" to "stable and steady growth with lower inflation."
The US stock market endured another volatile day, jumping after the Fed announcement, when it looked like a pause was coming, and then sinking as Powell spoke.
Ian Shepherdson of Pantheon Macroeconomics said that while the statement offered hope of a policy pivot, "Powell isn't budging yet."
He said the FOMC offered "a clear signal that the wave of 75bp hikes is over," however, the Fed chief "was deeply reluctant to promise that shift in December."
