The Federal Reserve made another sharp interest rate hike on Wednesday, as expected, in line with its move to quell red-hot inflation amid political turmoil ahead of major US midterm elections.
With high inflation squeezing American families of all political stripes, President Joe Biden faces a battle to avoid losing control of both chambers of Congress.
The Fed’s aggressive rate hikes so far this year have not had a significant impact on prices, but the risk of a recession in the US economy could increase even if the job market remains strong.
In its all-out fight to contain inflation, the US central bank raised the benchmark lending rate by 0.75 percent since the 1980s – the fourth straight increase of that size and the sixth this year.
The policy-making Federal Open Market Committee (FOMC) indicated that more growth would be needed to moderate rising prices, but it would consider the impact on the economy when deciding on the pace of future moves – opening the door to possibility. This will be implemented in small steps in the coming months.
The latest three-quarter percentage point increase takes the benchmark lending rate to 3.75-4.0 per cent, the highest since January 2008.
In a statement at the conclusion of its two-day policy meeting, the US central bank said higher rate hikes would be “appropriate” to achieve “sufficiently restrictive” levels to contain inflation.
However, it added that, “the Fed” will take into account the cumulative tightening of monetary policy, with which monetary policy affects economic activity and inflation, and economic and financial growth, in determining the pace of future growth. “
Analysts will scrutinize Fed Chair Jerome Powell’s press conference, due to begin 1830 GMT, for more clarity on whether the FOMC is considering easing its aggressive moves or the impact on prices and the overall economy. Withholding rate hikes to assess.
But while the Fed is moving too fast while reaffirming its legal mandate to reduce inflation, they face an uphill task of balancing concerns.
“It will be a challenge for the Fed to signal a final change in policy, while simultaneously communicating a firm commitment to reducing inflation,” Nancy Vanden Houten of Oxford Economics said in an analysis before the meeting.
She noted that several Fed officials have suggested in recent weeks that it is time for the central bank to consider slowing the pace of growth to avoid raising rates too much.
While the housing market has cooled sharply amid higher borrowing costs, key inflation measures show that prices continue to rise and the labor market remains tight, job opportunities are rising and private recruitment accelerated in October. Is.
political pressure
As central bankers take tough measures to fight inflation while avoiding driving the economy into recession, politicians are mounting pressure on Fed officials amid growing concerns of an economic slowdown.
Biden faces growing voter frustration over high inflation and signs off on a “red wave” that could sweep opposition Republicans to power in the House and Senate.
Republicans blamed Biden entirely for inflation and slow growth, while Democrats for the president worry that the Fed’s moves will lead to higher unemployment.
Democratic Senator Sherrod Brown last month urged the Fed to show commitment to its dual mandate – to promote maximum employment and stable prices – and reduce rate hikes.
“For working Americans who are already feeling the crush of inflation, job losses will only make it worse,” Brown said in a letter to Powell.
But Powell has argued that allowing high inflation to freeze would hurt American families and workers even more.
Oanda analyst Craig Erlam said it may be too late to avoid a recession “but the Fed has been very clear from the outset that a soft landing is a desirable and attainable outcome, but keeping inflation under control is the primary focus.”
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