U.S. Federal Reserve lifts rate by another quarter-point The Fed signalled that even though inflation is easing, it remains high enough to require further rate hikes.
Washington — The Federal Reserve extended its fight against high inflation Wednesday by raising its key interest rate by a quarter-point, its eighth hike since March. And the Fed signalled that even though inflation is easing, it remains high enough to require further rate hikes.
Speculation is widespread among Wall Street investors and many economists that with inflation continuing to cool, the Fed will soon decide to halt its aggressive drive to tighten credit. When they last met in December, the Fed’s policymakers forecast that they would eventually raise their benchmark rate to a range of 5% to 5.25%. That level would require two additional quarter-point hikes.
The consequences can be seen in housing. The average fixed rate on a 30-year mortgage soared after the Fed first began hiking rates. Eventually, it topped 7%, more than twice where it had stood before the hiking began. The more gradual pace is intended to help the Fed navigate what will be a high-risk series of decisions this year. The slowdown in inflation suggests that its rate hikes have started to achieve their goal. But measures of inflation are still far above the central bank’s 2% target. The risk is that with some sectors of the economy weakening, ever-higher borrowing costs could tip the economy into a recession later this year.
But recent gauges show that wage growth is slowing. And in December, overall inflation eased to 6.5% in December from a year earlier, down from a four-decade peak of 9.1% in June. The decline has been driven in part by cheaper gas, which has tumbled to $3.50 a gallon, on average, nationwide, from $5 in June.
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