The Federal Reserve on Wednesday raised its key rate by three-quarters of a percentage point.
The move was widely expected as the US central bank continues its struggle to rein in high inflation.
While the move will take the upper end of its range to 4%, the central bank also signaled that it may be nearing the end of the current cycle of rate hikes.
The bank said in a statement accompanying the decision that it would now factor the “cumulative tightening of monetary policy” into its rate decisions.
It’s the bank’s way of saying that after raising its rate five times in just six months, it’s getting closer to leaving the key rate as it is as it assesses the impact of its increases until now.
David Rosenberg, an economist at Rosenberg Research, said the Fed’s statement clearly suggests the central bank is beginning to “pivot” from rate hikes to another rate cut.
“The Fed must have said that it was still planning more rate hikes in order to keep flexing its anti-inflation muscles, but it said much the same thing in the summer of 2007 and the next thing you know…circumstances have changed and forced them to facilitate,” he said in a note to clients. “As the effects of cumulative tightening ripple through data in early 2023, the Fed will finished,” he said.
The Fed did its best in its statement to make it clear that it doesn’t think it’s done its hike yet.
“Continued increases in the target range will be appropriate,” the central bank said.
“That means officials don’t yet believe rates are restrictive enough to get the job done,” Desjardins economist Royce Mendes said of the release. “That said, they don’t give any indication of the degree of further rate increases.”
CIBC economist Katherine Judge said the Fed’s statement leaned more toward a full slowdown in the upside.
The bank, drawing attention to the lag in the impact of previous rate hikes, “will give officials a platform to halt rate hikes while inflation is still high,” it said. .
The Bank of Canada rose last week
The US central bank is one of many around the world scrambling to outrun runaway inflation.
After cutting its rate to zero at the start of the pandemic, two years later central banks around the world are aggressively raising lending rates to cool demand for goods and services.
The Bank of Canada raised its rate last week and exceeded expectations by only increasing the rate by 50 basis points, lower than its previous rise of 75 points. This was seen as a sign that Canada’s central bank is nearing the end of its rate hike cycle.
Bank Governor Tiff Macklem did little to dispel that narrative during testimony before the Senate Banking Committee on Tuesday night.
“This tightening phase will come to an end,” Macklem said in his prepared remarks. “We’re getting closer, but we’re not there yet.”
Federal Reserve Chairman Jerome Powell will say more about the U.S. bank’s line of thinking at a press conference later Wednesday.
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