The Federal Reserve has raised interest rates for the seventh time this year, while signaling that it is moving more cautiously as the U.S. economy slows.
The Fed’s rate-setting committee hiked its benchmark rate by 0.5 percentage point on Wednesday, lifting its target rate into a range between 4.25% and 4.5% — the highest level in 15 years. The federal funds rate affects the cost of borrowing for consumers and businesses throughout the economy.
The half-percentage-point increase marks a step-down from a string of bigger interest rate hikes this summer, when the Fed made four consecutive 0.75% jumps in an effort to curb the most ferocious bout of inflation in four decades.
In a nearly identical statement to the one it issued last month, the Fed said the economy is seeing “modest” growth and that inflation “remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
Notably, policymakers indicated they plan to keep raising rates, but suggested they would proceed more slowly than this year.
“Stagflation” ahead?
The Fed’s assessment of the economy has worsened in recent months. It now expects anemic economic growth next year of just 0.5% and predicts that unemployment will hit 4.6%, up from its current rate of 3.7%. The Fed also expects inflation to stay higher longer, with its preferred gauge of price increases, personal consumption expenditures, staying at 3.1% next year.
“[T]he combination of lower GDP and higher inflation signals stagflation,” Adam Crisafulli of Vital Knowledge said in a note.
Fed Chair Jerome Powell is set to address reporters at 2:30 p.m. Eastern time, when he will offer his outlook for the economy.
The Consumer Price Index — a closely watched inflation gauge — fell to 7.1% in November from a year ago, led by a decline in energy, commodity and used car prices, the Labor Department reported Tuesday. That reading was down from a peak of 9% in June, propelled by soaring fuel costs.
This is a developing story.
