Fed Hikes Interest Rates Again; Further Increases Could Be Smaller

There was some bad news, and some not-as-bad news, out of the Federal Reserve on Wednesday.

The bad news: The Fed announced it was raising interest rates by three-quarters of a point again, and also said borrowing costs are going to rise further as the fight against rampant inflation continues.

But, Fed Chair Jerome Powell also said it may be “nearing an inflection” point in the fight, Reuters reported Wednesday.

That seemed to indicate that further increases could come in smaller increments. Possibly as soon as December, in favor of increases closer to a half-point.

Powell, in a news conference after the end of the central bank’s latest policy meeting, said he wanted no confusion on that point: Even if policymakers do scale back future increases, he said, they were still undecided about just how high rates would need to rise to curb inflation, and were determined to “stay the course until the job’s done,” Reuters reported.

Whatever future increases entail, Powell said, “there’s some ground to cover” for the target federal funds rate to reach a “sufficiently restrictive” level that will slow inflation, Powell said. The final destination is “very uncertain … We’re going to find it over time.”

“The question of when to moderate the pace of increases is much less important than the question of how high … and how long to keep monetary policy restrictive,” he said, adding that it was “very premature” to discuss when the Fed might pause its increases.

Bill Nelson, a former top Fed staffer who is now chief economist at the Bank Policy Institute, told Reuters ahead of Powell’s news conference that the Fed’s policy statement appeared to set the central bank up for more rate hikes before its tightening cycle is completed, delivered at a possibly slower pace.

The document “implied that (the Fed) may be aiming for a higher medium-term level for the fed funds rate than currently expected,” Nelson told the outlet.