Fed further eases pace of tightening with quarter-point rate hike

Washington, Feb 1 (EFE).- The United States Federal Reserve on Wednesday announced the eighth consecutive increase in its benchmark interest rate, although the 25-basis-point hike marked its least aggressive move since March of last year.

Following this latest round of monetary tightening by the Federal Open Market Committee, the US central bank’s monetary policy-making body, the federal-funds rate now stands at a target range of between 4.5 percent and 4.75 percent, its highest level since September 2007.

This latest action comes as the US annual inflation rate has fallen sharply from 9.1 percent in June (its highest level in more than 40 years) to 6.5 percent in December (its lowest level in more than a year).

Fed Chairman Jerome Powell, who also heads the FOMC, sounded his most optimistic note to date about the impact of monetary policy on inflation, although his remarks at a news conference after Wednesday’s meeting were still measured.

“We can now say for the first time the dis-inflationary process has started,” he said, though adding that “we’re going to be cautious about declaring victory and sending signals that we think the game is won. Certainty is just not appropriate here.”

The Fed chief said the central bank has “no incentive and no desire to over-tighten, but if we feel like we’ve gone too far and inflation is coming down faster than we expect, then we have tools that would work on that.”

“So I do think in this situation, where we have still the highest inflation in 40 years, the job is not fully done.”

An FOMC policy statement released earlier Wednesday indicated that, despite the easing of the monetary tightening, the Fed is keeping the same laser-focus on inflation it has had for the past year.

“Ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” that body said in a statement after its latest two-day meeting, employing the same language it has used since last March.

Referring to consumer prices, the latest FOMC statement used the same wording as the previous five.

It said “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures” and that “the invasion of Ukraine by Russia … and related events are creating additional upward pressure on inflation.”

“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation and economic and financial developments.”

All 12 members of the FOMC, including Powell, voted for a quarter-point rate hike.

The Fed began its monetary tightening nearly a year ago with a lukewarm quarter-point hike in the federal-funds rate in March 2022.

But it soon turned much more aggressive, raising that rate that banks charge each other to borrow or lend excess reserves overnight by a half point in May and then by three quarters of a percentage point in June, July, September and November before easing off somewhat and voting for a 50-basis-point hike in December. EFE

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