The Federal Reserve lightly tapped the brakes on its high-speed interest rate rises on Wednesday following news that suggested two years of runaway inflation may be slowing down in the US.
After a two-day meeting the Fed announced another half-point increase in interest rates, its seventh increase of the year but one that follows four straight three-quarter-point interest rate hikes. The increase brings the Fed’s benchmark interest rate – used for everything from setting mortgage rates and loans to credit cards – to a range of 4.25% to 4.5%, its highest level in 15 years.
Fed chair Jerome Powell said: “Having moved so quickly, and having now so much restraint that is still in the pipeline, we think that the appropriate thing to do now is to move to a slower pace.”
Powell made clear that there would be more rate rises next year and the Fed expects inflation to remain elevated in 2023.
The central bank has been raising rates at a pace unseen in decades as it fights to tamp down a cost of living crisis that saw inflation rise to a four-decade high of 9.1% in June.
The Fed’s announcement comes after the US Bureau of Labor Statistics reported on Tuesday that the consumer price index figures – which measure a broad range of goods and services – showed prices rising by 7.1% from last November, with a 0.1% increase from October.
The news was better than expected, prices rose by an annual rate of 7.7% in October and the monthly increase was the lowest since last December. But the inflation rate is still over three times higher than the Fed’s target of 2% and Powell, said that he expects to keep rates higher for longer than he first expected.
The Fed initially dismissed US inflation as “transitory” and argued it would fade as coronavirus-related supply chain issues unwound. It is now predicting that core inflation, which excludes volatile food and energy categories, will fall from 5% on an annual basis in October to 3.5% at the end of next year. That is higher than the projection of 3% the Fed made in September.
