To no one’s surprise the Federal Reserve delivered its third consecutive 0.75% rate increase on Wednesday as the Federal Open Market Committee raised its benchmark rate to a range of 3% to 3.25% from 2.25% to 2.5% previously. It was all pretty much as expected although his specific comments on the housing market may have shocked some. He said effectively that dropping home prices won’t stop the quest to strangle inflation. Property bulls please note.
So, after this latest rate hike, the Fed has now lifted its benchmark rate by 300 basis points, or 3% in just six months as the central bank accelerates policy to restrictive territory with the aim of slowing growth enough to make a meaningful dent in inflation.
“We can’t fail to do that,” he said, referring to the central bank’s mission against price growth. “That would be the thing that would be most painful for the people that we serve. We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t. What we need to do is get rates up to the point where we’re putting meaningful downward pressure on inflation. That’s what we’re doing. We haven’t given up the idea that we can have a relatively modest increase in unemployment.”
But critically, there were no signs of easing its push into restrictive territory as it battles to cool the embers of inflation.
“We’ve just moved into the very, very lowest level of what might be restrictive [territory],” Powell said in the press conference that followed the monetary policy statement. “In my view, there’s a ways to go.”
As a result, the Fed now sees its benchmark rate rising to 4.4% in 2022, above the 3.4% forecast in June, paving the way for further front-loading of rate hikes in the remaining two Fed meetings for the year and into 2023.
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