“The time to slow the pace of rate hikes could come as early as the December meeting,” the Federal Reserve chairman said in a speech in Washington.
Fed rates should now rise more slowly, but the fight against inflation is far from over, according to the head of the Central Bank and monetary policy could remain restrictive “for a while”.
“The time to slow the pace of rate hikes may come as early as the December meeting,” US Federal Reserve Chairman Jerome Powell said Wednesday in a speech at the Brookings Institution in Washington.
The episode of increases in the reference rate by three quarters of a point, well above the usual quarter point, and which had not been used since 1994 before June, could therefore soon come to an end.
The next Fed meeting is scheduled for December 13-14.
However, the president of the powerful institute has warned that the work is far from finished: “inflation remains far too high”, he insisted, underlining that the PCE inflation index, the Fed’s favorite barometer and whose October data will be released on Thursday, is forecast at 6.0% over a year, down slightly from 6.2% in September.
The other inflation index, the CPI, which serves as a benchmark and is used to index pensions, fell to 7.7% year-on-year in October, from 8.2% in September.
“Low months in data are often followed by rebounds,” warns Jerome Powell though.
“Considerable Uncertainty”
As a result, the Monetary Policy Committee (FOMC), the Fed’s decision-making body, predicts “that further hikes will be appropriate,” he hammered.
Mr Powell, on the other hand, did not specify how high these overnight rates should be raised, which currently stand between 3.75 and 4.00% after starting from zero at the start of the year.
“There is considerable uncertainty as to which rate will suffice,” he commented.
It is, however, “likely” that rates will need to stay high “for some time” to sustainably slow inflation, Powell also believes.
The Fed has raised borrowing costs since March to combat high inflation in the US.
The majority of its officials believe that a slowdown in monetary tightening will “soon be appropriate”, the Fed had already argued in the minutes (“the minutes”) of the last meeting, on November 1 and 2.
The Monetary Committee therefore raised its key rate by three-quarters of a percentage point (0.75%), for the fourth consecutive time.
These federal funds rates affect all other lending in the United States, and their increase has clearly weakened the housing market by making mortgage loans more expensive.
