Jerome Powell, the Federal Reserve chairman, left little doubt that he was prepared to push the rates up to remove inflation after the 75-basis point hike Wednesday.
Despite hiking the rates for the fourth consecutive time, the central bank is looking at the possibility of slowing down the pace of the increase in rates.
The Fed’s benchmark has climbed from zero rates in March to 3.75% to 4% after the latest hike. The economy has, however, shown admirable resilience; even as housing markets slowed on higher borrowing costs, the inflation remained at 40 years increased.
Initial gains in the US stocks reversed, with S&P 500 suffering the worst slump on the Fed Policy decision day since January 2021. Powell signaled that hikes pave would be slower by communicating that Fed was done with tightening policies.
Shift Focus
The focus is now on what the next rate hike will be, what the peak will be, and for how long the rates will stay at those levels. The language used in the statement by the Federal Open market Committee (FOMC) review was the term “sufficiently restrictive.” The Fed balance it by saying that future hikes would consider the cumulative monetary policy and its effect on economic activity, inflation, and financial a d economic development.
The unanimous vote in FOMC made some economists comment that it looked like a compromise to prevent dissent. Powell was careful to spell out that his statement did not mean any retreat on inflation.
According to Bloomberg Economics, the November 2 meeting conveyed Powell’s clear message that the market should not expect a hike of 75 basis points every time though the central bank is not dovish either.
Unemployment woes
The unemployment levels are currently at 3.5% and close to five-decade lows. The job openings rebounded in September with a ratio of 1.9 for every job available for the number of persons unemployed. Powel, who watches the job market, said that the labor market was displaced and expressed concerns over the persisting high inflation even as prices decelerated for certain goods.
Mid-term elections
The Federal Reserve’s latest hike comes days before the midterm election on November 8. The democrats have been criticizing the rising borrowing costs and worrying about the increase in unemployment. Powel is convinced that low inflation is better for Americans in the long run, even with high short-term costs.
Powell, however, acknowledged that the run-up to a soft economic landing looks difficult because strong consumer demand and persistently high inflation show that the rate hikes this year did not have much impact.
Veronique de Rugy, an economist at George Mason University’s Mercatus Centre in Arlington, Virginia, said there was pressure on Powell to pause, wait for a slowdown, and try to get out of the high inflation.
Meta Description: The pace of the rate hike may decrease by December by the Central
Bank. Fed Chair Powell says the option of pause is premature at this juncture.
