The Fed Approves a 0.75-point Rate Hike, the Highest Since 2008

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Last Updated on November 3, 2022 by Bitfinsider

On Wednesday, the Federal Reserve approved a fourth consecutive quarter-point hike in interest rates and suggested a potential shift in its approach to monetary policy to combat inflation.

The central bank boosted its short-term borrowing rate by 0.75 percentage point to a target range of 3.75 percent to four percent, the highest level since January 2008.

This action continued the most aggressive pace of monetary policy tightening since the early 1980s, when inflation was last this high.

In addition to anticipating the rate increase, markets were looking for wording signaling that this could be the final 0.75-point, or 75 basis point, rise.

The Fed will consider the cumulative tightening of monetary policy, the lags in how monetary policy affects economic activity and inflation, and economic and financial events when assessing future hikes, according to the new statement.

Economists are hopeful that this is the much-discussed “step-down” in policy that could result in a half-point rate increase at the December meeting and then several smaller rate increases in 2023.

Additionally, this week’s statement elaborated on the previous declaration that “continuous rises in the target range will be appropriate.”

The modified phrasing stated, “The Committee anticipates that further hikes in the target range will be necessary to achieve a monetary policy stance that is sufficiently restrictive to return inflation to 2 percent over time.”

The market was attempting to gauge whether the Fed believes it can implement a less restrictive policy, which would include a slower pace of rate hikes, in order to achieve its inflation objectives. During Chairman Jerome Powell’s news conference, the market turned negative as investors attempted to determine whether the Fed believes it can implement a less restrictive policy, which would include a slower pace of rate hikes.

Overall, Powell rejected the notion that the Fed may soon pause, but he said he anticipates a conversation about reducing the rate of tightening at the next meeting or two.

Additionally, he highlighted that it may require resolve and perseverance to reduce inflation.

“We still have a ways to go, and new information received since our last meeting indicates that the ultimate level of interest rates will be higher than anticipated,” he said.

However, Powell reiterated that there may come a moment when rate increases are slowed down. He has recently stated this at news conferences.

“Therefore, the time is approaching, and it may arrive as soon as the next or subsequent meeting. No decision has been made,” he stated.


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