The Fed’s move raised its benchmark short-term interest rate to a range of 3.75% to 4%, the highest level in 15 years. It was the central bank’s sixth rate hike this year — a streak that has made mortgages and other consumer and business loans increasingly expensive and raised the risk of a recession. In a statement after its last meeting, the Fed said that in the coming months it will consider the cumulative impact of large interest rate hikes on the economy. He noted that interest rate hikes take time to fully affect growth and inflation. The Fed meeting came as financial markets and many economists grew nervous that Chairman Jerome Powell would end up leading the central bank to raise borrowing costs higher than needed to tame inflation and trigger a painful recession. In the process of. Powell implicitly expressed these fears in a press conference. While he stressed that the Fed would continue to raise interest rates – possibly even higher than it predicted in September – he left the door open for a rate cut to a half-point increase at its next meeting in December. The Fed could then cut back even further to a quarter-point hike — a more typical rate hike — early next year. “At some point,” he said, “it will become appropriate to slow down the rate of increases. So this time is coming, and it may not be until the next meeting or the next. No decision has been made.” Powell appeared to be trying to strike a delicate balance by suggesting that the Fed may start tapering its rate hikes, but remains focused on fighting inflation and raising rates as high as necessary. “We believe we have a ways to go” to reduce inflation, he suggested. The persistence of inflated prices and higher borrowing costs is squeezing American households and has undermined the ability of Democrats to campaign for the health of the labor market as they try to retain control of Congress. Republican candidates have hammered Democrats over the punishing impact of inflation ahead of midterm elections that wrap up on Tuesday. The story continues Stocks and bond prices, which had risen immediately after the Fed’s policy statement, fell into negative territory after Powell made it clear at a news conference that the central bank remained committed to steady credit tightening at a level that would weaken the economy. The Fed chairman pointed out that it would be “too early” to think about holding off on rate hikes to allow time to see how well they work. Inflationary pressures, he said, remain very high. “Chairman Powell stuck to this double-edged message: We’re not done yet, with high inflation and a strong commitment to reducing it,” Sal Guatieri, senior economist at BMO Capital Markets Economics, wrote in a note. “But we may not need to continue to aggressively raise rates, given an economy that has slowed significantly since last year and long-term inflation expectations that remain ‘well anchored.’ “ Typically, the Fed raises interest rates in quarterly increments. But after miscalculating the deterioration in inflation last year as likely to be temporary, Powell led the Fed to raise interest rates aggressively to try to slow borrowing and spending and ease price pressures. Wednesday’s rate hike coincided with growing concerns that the Fed may tighten credit enough to derail the economy. The government said the economy grew last quarter and employers continued to hire at a steady pace. However, the housing market has soared and consumers are barely increasing their spending. The average rate for a 30-year fixed mortgage, just 3.14 percent a year ago, topped 7 percent last week, mortgage buyer Freddie Mac said. Existing home sales have fallen for eight consecutive months. Several Fed officials recently said they have yet to see significant progress in their fight against rising costs. Inflation rose 8.2% in September from 12 months earlier, just below the highest rate in 40 years. But policymakers may feel they can soon slow the pace of their rate hikes because some early signs suggest inflation could start to ease in 2023. Consumer spending, squeezed by high prices and the more expensive loans barely increase. Supply chain crises are reduced, which means fewer shortages of goods and parts. Wage growth is a mountain range, which, if followed by reductions, will reduce inflationary pressures. However, the labor market remains consistently strong, which could make it harder for the Fed to cool the economy and curb inflation. This week, the government reported that companies posted more jobs in September than in August. There are now 1.9 jobs available for every unemployed person, an unusually large supply. Such a high ratio means that employers will likely continue to raise wages to attract and retain workers. These higher labor costs are often passed on to customers in the form of higher prices, thus fueling more inflation. Outside the United States, many other major central banks are also rapidly raising interest rates to try to reduce inflation levels that are even higher than in the U.S. Last week, the European Central Bank announced its second rate hike in a row, raising rates at the fastest pace in the history of the euro currency to try to curb inflation that soared to a record 10.7% last month. Similarly, the Bank of England is expected to raise interest rates on Thursday to try to ease consumer prices, which have risen at their fastest rate in 40 years, to 10.1% in September. Even as they raise rates to fight inflation, both Europe and the UK appear to be sliding into recession. Christopher Rugaber, The Associated Press
