After four straight three-quarter-point interest rate hikes, the Federal Reserve is set to announce a smaller half-point increase in its key rate Wednesday, a first step toward dialing back its efforts to combat inflation.
The six rate hikes the Fed has already imposed this year have raised its key short-term rate to a range of 3.75% to 4%, its highest level in 15 years. Cumulatively, the hikes have led to much costlier borrowing rates for consumers as well as companies, ranging from mortgages to auto and business loans. Worries have grown that the Fed is raising rates so much in its drive to curb inflation that it will trigger a recession next year.
"The data kind of fits with our idea that the Fed will downshift further in February," said Matthew Luzzetti, an economist at Deutsche Bank and a former research analyst at the Fed. "Downshifting helps to maximize their prospects of a soft landing," in which the Fed's rate hikes would slow growth and tame inflation but not tip the economy into a recession.
"What policy rate is sufficiently restrictive we will only learn over time by watching how the economy evolves," said Lisa Cook, one of seven members of the Fed's Board of Governors. "Given the tightening already in the pipeline, I am mindful that monetary policy works with long lags." In his speech, Powell noted that there had been some progress in easing inflation in goods and housing but not so in most services. Some of those trends extended into last month's data, with goods prices, excluding food and energy, falling 0.5% from October to November, the second straight monthly drop.
They already announced this a long time ago.
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