The move was widely expected as the US central bank continues its fight to tame high inflation. While the move will push the top of its range to 4%, the central bank also signaled it may be nearing the end of the current cycle of rate hikes. The bank said in a statement accompanying the decision that it would take into account the “cumulative tightening of monetary policy” in making interest rate decisions going forward. This is the bank’s way of saying that after raising interest rates five times in just six months, it is moving closer to leaving the rate where it is while it assesses the impact of its increases so far. However, that doesn’t mean the Fed is completely done with rate hikes entirely. “Continued increases in the target range will be appropriate,” the central bank said. “That means officials don’t yet think interest rates are restrictive enough to do the job,” Desjardins economist Royce Mendes said of the statement. “That said, they don’t give any indication of how much further interest rates should rise.” Kathryn Judge, an economist at CIBC, saw the Fed’s statement as leaning more toward a complete slowdown in hikes. The bank’s attention to the lag in the impact that previous rate hikes have had “will give officials a platform to stop raising rates while inflation is still high,” it said.
The Bank of Canada hiked last week
The US central bank is one of many around the world struggling to catch runaway inflation. After cutting interest rates to zero in the early days of the pandemic, two years later, central banks around the world are aggressively raising their lending rates to dampen demand for goods and services. The Bank of Canada raised interest rates last week and defied expectations by only raising rates by 50 basis points, down from a previous hike of 75 basis points. This was taken as a sign that Canada’s central bank is nearing the end of its rate hike cycle. Bank governor Tiff Macklem did little to dispel that narrative in testimony before the Senate Banking Committee on Tuesday afternoon. “This tightening phase will come to an end,” Macklem said in his prepared remarks. “We’re getting close, but we’re not there yet.” Federal Reserve Chairman Jerome Powell will have more to say about the US bank’s line of thinking at a news conference later Wednesday.
