Fed opts for a slight rate hike, but still expects to continue with restrictive policy

The Federal Reserve The United States raised its target interest rate by a quarter of a percentage point on Wednesday, February 1, but continued to promise “continued increases” in borrowing costs as part of its unresolved battle against inflation.

“Inflation has come down a bit, but it’s still high,” said the central bank of USA in a statement that marked an explicit recognition of the progress made in slowing the pace of price increases from the 40-year highs reached last year.

Russia’s war in the Ukraine, for example, still adds up to a “high global uncertaintythe Fed said.

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But policymakers have dropped the tone of earlier statements citing the war and the COVID-19 pandemic as direct contributors to rising prices.

Still, the fed He said that the US economy was enjoying a “modest growth” and a raise “solid” of employment, and that the authorities continue “very attentive to the risks of inflation”.

“The (Federal Open Market) Committee anticipates that continued increases in the target range will be appropriate to achieve a monetary policy stance that is tight enough to return inflation to 2% over time,” said the Fed.

The decision raised the benchmark overnight interest rate to a range between 4.50% and 4.75%, a move widely anticipated by investors and commented on by US central bank officials ahead of the two-day monetary policy session. This week.

But by making good on the promise of more rate hikes to come, the fed it dismissed investor expectations that it was ready to mark the end of the current tightening cycle as a nod to the fact that inflation has been falling steadily for six months.

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The statement indicated that any future rate increases would be in quarter-point increments, removing a reference to the “pace” of future increases and referring instead to the “scope” of changes in rates.

But these, he said, would take into account how policy moves so far had impacted the economy, language that tied more rate hikes to how upcoming economic data evolves.

In a conference following the announcement of the fedthe president of the entityJerome Powell said “we will need many more tests” that inflation is declining to be confident that it is getting back on target.

“It would be too premature to declare victory over inflation”Powell added, noting that the central bank’s monetary policy remains tight, although the debate centers on the level of monetary tightening that is required.

The fed it hopes it can keep pushing inflation to its 2% target without triggering a deep recession or causing the unemployment rate to rise substantially from the current 3.5%, a level rarely seen in decades. Inflation slowed to an annual rate of 5% in December.

The US central bank did not issue new economic projections from its policymakers on Wednesday.

Source: Reuters