The Federal Reserve raised its key interest rate another three-quarters of a percentage point as it battles the hottest inflation in decades.
The move by the central bank’s rate-setting committee, announced Wednesday after a two-day meeting, marks the sixth rate hike this year and the fourth consecutive 0.75 percentage point jump since June. The jumbo increase was widely expected by Wall Street given that inflation has remained stubbornly high despite the Fed’s aggressive campaign to curb sharply higher prices.
The Fed’s target rate is now in the range between 3.75% and 4%.
The rate increase changes how much banks pay to borrow money from the Fed, which in turn affects how much it costs consumers and businesses to borrow and feeds into rates for mortgages, credit-card debt and car loans. The rate hikes to date have brought the average mortgage rate above 7%, its highest level in 20 years.
Fed hints it may slow pace of rate hikes
Despite another big step up in the federal funds rate, policy makers hinted that they are open to easing the pace of hikes as their monetary tightening slows the economy.
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” it said in a statement, which also noted “modest growth” in spending and production.
“The Fed raised its policy rate by another 75 [basis points] today, to between 3.75% and 4.00%, but laid the groundwork in the accompanying statement for a probable drop down to a 50bp hike at the next meeting in mid-December,” Paul Ashworth, chief North America Economist with Capital Economics, in a report. “Markets have interpreted the shift in tone as dovish.”
Stocks surged on the announcement, reversing earlier losses, as investors cheered the Fed’s signal that it could slow its hiking cycle. The Dow jumped to 32,937 shortly after 2 p.m., a swing of 1.3%.
“The Fed forward guidance shifted in a dovish direction,” Wall Street analyst Adam Crisafulli of Vital Knowledge told investors in a client note. “Previously, the Fed simply said that future rate hikes would be appropriate. However, now there is a lot more text, and importantly, the Fed says it will consider existing tightening steps, the lagged effect of policy, and ‘economic and financial developments.'”
Fed Chair Jerome Powell began addressing reporters at 2:30 p.m. Eastern time, detailing the bank’s economic outlook.
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