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US Fed makes fourth jumbo rate increase and signals more to come

NEW YORK — Federal Reserve officials made their fourth supersize interest rate increase in a row on Wednesday (Nov 2) and signalled that they planned to lift rates higher than they had previously anticipated as inflation proves surprisingly rapid and stubborn.

The Fed made clear in its policy statement that it would soon slow down the rate increases, giving officials more time to see how the economy was digesting its moves to date.
The Fed made clear in its policy statement that it would soon slow down the rate increases, giving officials more time to see how the economy was digesting its moves to date.

NEW YORK — United States (US) Federal Reserve officials made their fourth supersize interest rate increase in a row on Wednesday (Nov 2) and signalled that they planned to lift rates higher than they had previously anticipated as inflation proves surprisingly rapid and stubborn.

Markets gyrated as investors tried to digest the central bank’s two-part message.

The Fed made clear in its policy statement that it would soon slow down the rate increases, giving officials more time to see how the economy was digesting its moves to date.

That pushed stocks higher as investors sensed a letup in the Fed’s aggressive push to constrain the economy.

But Fed Chair Jerome Powell underscored during a news conference after the central bank’s two-day meeting that policymakers were dedicated to wrestling price increases lower and were nowhere near stopping their efforts to raise borrowing costs and slow growth.

The Fed lifted rates another three-quarters of a point this week, setting them in a range between 3.75 per cent and 4 per cent.

Mr Powell’s stern stance sent stock prices plummeting, with the S&P 500 ending the day down 2.5 per cent.

“It is very premature to think about pausing,” Mr Powell said Wednesday.

When asked how markets should interpret his remarks, he said officials would most likely raise rates higher than their previous forecast, which showed rates peaking at 4.6 per cent next year. They also expect to keep them elevated for some time. “We have a ways to go,” he explained. “I would want people to understand our commitment to getting this done.”

“They are still worried about inflation getting entrenched,” said Ms Aneta Markowska, chief financial economist at Jefferies. “It doesn’t look like a Fed that’s anywhere near pausing.”

The Fed has already lifted interest rates six times this year: They were set to near zero as recently as March. Officials previously signalled that they might slow their rate increases at their next meeting, which is scheduled for Dec 14, by raising rates half a point. That moderation remains possible, Mr Powell said Wednesday, but is not guaranteed.

“That time is coming: It may come as soon as the next meeting, or the one after that,” he said. “No decision has been made.”

 

This article originally appeared in The New York Times.

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