The Federal Reserve raised interest rates another 75 basis points, setting the target federal funds rate in a range between 3.75% and 4.00%, the highest since early 2008. The Fed has raised interest rates for six consecutive monetary policy meetings, marking the most aggressive round of rate increases since former Fed Chair Paul Volcker’s fight to control inflation in the 1970s and 1980s.
While the Fed’s fight against inflation isn’t over, it suggested the pace of rate increases could slow.
“Ongoing increases in the target range will be appropriate,” the post-meeting statement said, noting officials remained “highly attentive to inflation risks.” While not disclosing any future decisions, officials said, “In determining the pace of future increases in the target range, the [Federal Open Market] 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 his post-meeting press conference, Fed Chair Jerome Powell acknowledged the “ultimate level” of interest rates will likely be higher than previously estimated. He said there was “significant uncertainty” around the level of rates needed to bring down inflation but noted “we still have some ways to go.” He also said the Fed has tools to respond if it overtightens monetary policy.
Powell’s comments seemed to walk back the more dovish tone in the post-meeting statement. He also said the window of opportunity for a “soft landing” has narrowed, though noting there’s still a chance the U.S. economy can avoid a recession.