December 15, 2022 (MLN): The Federal Reserve on Wednesday raised its benchmark policy rate by 50 basis points (bps) to 4.5%, signaling its intention to keep squeezing the US economy next year, as central banks on both sides of the Atlantic enter a new phase in the battle against inflation, as reported by Financial Times.
It was a step down in the pace of tightening that marked a months-long string of 0.75 percentage point increases.
The pivot to smaller rate rises is likely to be followed internationally, with the European Central Bank and the Bank of England both poised to increase borrowing costs by half a percentage point on Thursday, it added.
Economists say inflation has peaked in all three regions, with reductions in the headline rate in the US and UK this week, but central banks remain worried that it will take too long to fall towards their 2% targets.
In a press conference following the decision, Fed chair Jay Powell said: “We’ve covered a lot of ground and the full effects of our rapid tightening so far are yet to be felt. We have more work to do.”
Powell welcomed a reduction in headline price growth in the US in October and November but warned: “it will take substantially more evidence to give confidence that inflation is on a sustained downward path”.
In its statement the Fed said “ongoing increases” in the policy rate would be “appropriate” in order to ensure it is restraining the economy enough to bring price growth under control.
