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The Federal Reserve is dialing back the pace of its short-term interest rate hikes, but Fed Chairman Jerome Powell is warning of more rate increases to come in the New Year as policymakers remain concerned that inflation will become entrenched.
Wrapping up their final meeting of the year Wednesday, Fed policymakers unanimously approved an expected 50-basis point increase in the federal funds rate to a target range of 4.25 percent to 4.5 percent.
While smaller than the 75-basis point increases implemented by the Fed at its last four meetings, “50 basis points is still a historically large increase and we still have some ways to go,” Powell said at a press conference following the Federal Open Market Committee meeting.
https://www.youtube.com/watch?v=Ho2iJXlcmR8
The so-called “dot plot” — a poll of committee members’ projections of how much more rates will have to go up to combat inflation — suggests that the Fed will keep raising rates next year until the federal funds rate is just above 5 percent.
That would require policymakers to implement rate increases next year totaling 75 basis points, or three-quarters of a percentage point. Asked whether the Fed will move to smaller, 25-basis point increases at future meetings, Powell said the more important question is how high rates will go — and how long the Fed will keep them there.
“As we have gone through the course of this year … and we saw how strong inflation was and how persistent, it was important to move quickly. The speed and pace was the most important thing,” Powell said. “Now that we’re coming to the end of this year, we have raised 425 basis points this year and we’re into restrictive territory. It’s now not so important how…