By Yasin Ebrahim
Investing.com — The Federal Reserve raised interest rates by three-quarters of a percentage point Wednesday for the fourth time in row, and the central bank said the lagged impact of monetary policy, economic developments as well as inflation would determine the pace of future hikes, hinting at a higher bar for monetary policy tightening.
The Federal Open Market Committee raised its to a range of 3.75% to 4% from 3% to 3.25% previously.
In a sign that the Fed is growing wary of the impact that tighter financial conditions are having on the economy, the central bank said that the “committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” in determining the future pace of rate hikes.
The latest hike moved the Fed’s benchmark rate closer to levels that many believe are close to a peak, or so-called terminal rate. The Fed’s latest projections, released at the September meeting, showed that central bank members favored lifting rates to 4.4% by the end of the year, and to a peak of about 4.6% in 2023.
Some believe the Fed may not need to reach the upper end of the rate projections as there’ll likely be evidence of a slowing economy in the coming months, reviving the focus on a possible recession.
“It could be the final hike of the year, or there might be 25bps hike in December, because by the end of the year, I think there’ll be enough of a sign of a real slowdown that they don’t need to do it and the risk will be even more two sided than it is now,” Chief Strategist at Spouting Rock Asset Management Rhys Williams told Investing.com’s Yasin Ebrahim in an interview on Tuesday.
The Fed has, however, highlighted that the pace of hikes would be data dependent. But the latest data continue to point to a robust labor market, and inflation that remains sticky.
Following the monetary policy statement, Treasury yields slipped and stocks turned positive, with the trading about 0.5% higher.
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