WASHINGTON (AP) — The Federal Reserve extended its fight against high inflation Wednesday by raising its key interest rate by a quarter-point, its eighth hike since March. And the Fed signaled that even though inflation is easing, it remains high enough to require further rate hikes.
Though smaller than its previous hike — and even larger rate increases before that — the Fed's latest move will likely further raise the costs of many consumer and business loans.
In a statement, Fed officials repeated language they have used since March that says, “ongoing increases in the (interest rate) target range will be appropriate.” That is seen as a signal that they intend to raise their benchmark rate again when they next meet in March and perhaps in May as well.
The Fed’s hike was announced one day after the government reported that pay and benefits for America’s workers grew more slowly in the final three months of 2022, the third straight slowdown. That report might help reassure the Fed that wage gains won’t fuel higher inflation.
Though the Fed kept language in its statement suggesting that more rate hikes are in store, it did note for the first time that price pressures are cooling. It said “inflation has eased somewhat but remains elevated." The statement also hinted that it will likely stick with modest quarter-point hikes in coming months and is considering when to eventually suspend its rate increases.
But the overall message was that the Fed isn't done raising rates.
“We will need substantially more evidence to be confident that inflation is on a long, sustained downward path, Chair Jerome Powell said at a news conference.
Over the past several months, the Fed’s officials have reduced the size of their rate increases, from four unusually large three-quarter-point hikes in a row last year to a half-point increase in December to Wednesday’s quarter-point hike.
The more gradual pace is intended to help the Fed navigate what will be a high-risk series of decisions this year. The central bank’s latest move put its benchmark short-term rate in a range of 4.5% to 4.75%, its highest level in about 15 years.
The slowdown in inflation suggests that its rate hikes have started to achieve their goal. But measures of inflation are still far above the central bank’s 2% target. The risk is that with some sectors of the economy weakening, ever-higher borrowing costs could tip the economy into a recession later this year.
Retail sales, for example, have fallen for two straight months, suggesting that consumers are becoming more cautious about spending. Manufacturing output has fallen for two months. On the other hand, the nation’s job market remains strong, with the unemployment rate at a 53-year low of 3.5%.