New Delhi: The US Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point in its latest move to get ahead of runaway inflation. The decision by the central bank was in line with what economists were expecting, although there was some thought that the Fed might hike by even a full percentage point.
Instead, the Fed raised its trendsetting rate by 75 basis points for the third time in a row. The Fed’s rate is now at its highest point since 2008, and policy-makers are signaling they are not done yet: officials forecasted that they will boost their benchmark rate to roughly 4.4 percent by year’s end, a full percentage point higher than they had forecast in June.
That aggressive path for rates speaks to just how big a problem policy-makers think inflation is. Inflation rates have roared to multi-decade highs around the world in recent years, prompting a range of actions by central banks to get it under control.
All things being equal, central banks raise their rates when they want to cool down an overheated economy, and they cut their rates when they want to stimulate borrowing to grow the economy.
At a news conference following the decision, Fed chair Jerome Powell made it clear that the U.S. central bank is not afraid to keep rates where they are or go higher, for as long as it takes to rein in inflation.
They “want to be very confident that inflation is moving back down,” before contemplating cutting rates again, he said.
Barry Schwartz, chief investment officer at the Toronto-based Baskin Wealth Management, says it’s going to be hard for the Fed to do its job of bringing down inflation without causing pain in the broader economy.
“The big danger is that the Fed will overshoot … by raising interest rates too fast, too high, leading to a worsening economy,” he told media in an interview on Wednesday.
The Fed’s move will make it costlier to take out a mortgage or other forms of loans — and will no doubt cool consumer spending in the process. The average 30-year mortgage rate in the US topped 6.4 percent last week, its highest level in 14 years.
(Vinayak)