WASHINGTON: The Federal Reserve raised the key US interest rate again Wednesday and said more hikes are coming as it battles soaring prices — an aggressive stance that has raised fears of a recession.
It was the third consecutive increase of 0.75 percentage point by the Fed’s policy-setting Federal Open Market Committee (FOMC), continuing the forceful action to tamp down inflation that has surged to the highest in 40 years.
The increase takes the policy rate to 3.0-3.25 per cent, and the FOMC said it “anticipates that ongoing increases… will be appropriate.”
Soaring prices are putting the squeeze on American families and businesses and have become a political liability for President Joe Biden, as he faces midterm congressional elections in early November.
But a contraction of the world’s largest economy would be a more damaging blow to Biden, to the Fed’s credibility and to the world at large.
Federal Reserve Chair Jerome Powell has made it clear that officials will continue to act aggressively to cool the economy and avoid a repeat of the 1970s and early 1980s, the last time US inflation got out of control.
It took tough action — and a recession — to finally bring prices down in the 1980s, and the Fed is unwilling to give up its hard-won, inflation-fighting credibility.
The Fed’s quarterly forecasts released with the rate decision Wednesday show FOMC members expect a sharp slowdown with US GDP growth of just 0.2 per cent this year, but a return to expansion in 2023, with annual growth of 1.2 per cent.
Powell’s press conference after the meeting will be closely scrutinized for clues on how much more he thinks the Fed will have to do before it declares victory in the inflation fight.
FOMC members see further rate hikes this year and next, with no cuts until 2024.