Interest Rate Pace To Moderate In December, Says Fed Chair Jerome Powell

The US central bank has increased its interest rates from near zero in March to the 4.25-4.50 per cent range to fight 40 years of high inflation

US Federal Reserve is expected to further hike the rate by a half-percentage-point in December.

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The Federal Reserve could slow the pace of interest rates hikes in the December meeting, said Fed Chair Jerome Powell on Wednesday, while adding that the fight against inflation was not over, reported Reuters. He also said that the key questions, like how high rates will ultimately need to rise and for how long, still remains unanswered. 

In his speech at the Brookings Institution in Washington, Powell said, “It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.” 

But on US central bank’s fight against inflation, he said, “Far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level. We will stay the course until the job is done. we have a long way to go in restoring price stability ... Despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation."

The Fed chief’s comment appears to go against the market expectations that the US central bank could begin cutting rates next year as the economy slows, the Reuters report noted.

Although Jerome Powell in his speech did not indicate his estimated “terminal rate,” he said it is likely to be higher than the 4.6 per cent indicated by policymakers in September.

The US central bank has increased its interest rates from near zero in March to the 4.25-4.50 per cent range to fight 40 years of high inflation. It is expected to further hike the rate by a half-percentage-point in December. This rate hike has made home mortgages and other loans more expensive for consumers and businesses. 
 
However, it has little impact on the US Job market. The Unemployment rate of 3.7 per cent has caused policymakers to argue they are free to further tighten the rates. The Interest rate hike also didn’t have a convincing impact yet on inflation. This has raised the question of how further the Fed may need to raise rates to slow the economy, the report said.

On Wednesday, Powell said that Fed estimates of October inflation showed its preferred measure still rising at about triple the central bank's 2 per cent target.

He said, “Growth in economic activity has slowed to well below its longer-run trend.” But for inflation to slow “this needs to be sustained. Bottlenecks in goods production are easing and goods price inflation appears to be easing as well, and this, too, must continue,” Powell added.