Fed opts for small hikes, still expects ‘continuous hikes’

In Business
February 02, 2023
Fed opts for small hikes, still expects 'continuous hikes'

The Federal Reserve raised its target interest rate by a quarter of a percentage point on Wednesday (February 1), but continued to pledge “sustained increases” in borrowing costs as part of its unresolved fight against inflation.
“Inflation has eased but remains elevated,” the Fed said in a statement. The statement explicitly acknowledged progress in reducing the pace of inflation from a 40-year high hit last year.

Russia’s war in Ukraine remains seen as a factor “increasing global uncertainty,” the Fed said. But policymakers dropped language from earlier statements, saying the Russia-Ukraine war and the COVID-19 pandemic were direct causes of the price hike.However, the Fed said the U.S. economy was experiencing “moderate growth” and “strong” job growth, and policymakers needed to remain “highly focused on inflation risks.”

“The FOMC expects that sustained increases in the target range will be appropriate to achieve the status of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” the Fed said.The Fed’s decision to raise the benchmark overnight interest rate to between 4.50% and 4.75% was widely expected by investors and was marked by Fed officials ahead of this week’s two-day policy meeting.

But in order to honor the future more The pledge to raise interest rates, the Fed pushed back investors’ expectations that it was poised to end the current tightening cycle to signal the fact that inflation has been falling steadily for six straight months.The statement did suggest that any future rate hikes would be priced at four points Instead of referring to the “speed” of future rate hikes, the statement said only the “degree” of interest rate changes.

However, the statement said that future rate hikes will take into account the impact of policy actions so far on The extent of the impact on the economy, and language linking further rate hikes to the evolution of future economic data. The

Fed hopes to be able to continue to reduce inflation to its 2% target without triggering a deep recession or driving unemployment from the current 3.5% The level of unemployment has risen sharply.The current unemployment rate is a level rarely seen in recent decades. Inflation slowed to an annual rate of 5 percent in December, according to the Fed’s preferred measure.

The Fed did not release new forecasts for the economy from policymakers on Wednesday.

(This article is based on a Reuters report.)

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