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.
Federal Reserve chair Jerome Powell speaks during a news conference, Wednesday, Feb. 1, 2023, at the Federal Reserve Board in Washington.
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 divide between the Fed and financial markets is important because rate hikes need to work through markets to affect the economy. The Fed directly controls its key short-term rate. But it has only indirect control over borrowing rates that people and businesses actually pay — for mortgages, corporate bonds, auto loans and many others.
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 Fed’s latest policy statement indicated that the central bank no longer regards COVID-19 as a driver of higher prices. It removed from its statement a reference to the pandemic as a cause of supply shocks that have heightened inflation. It also dropped a reference to “public health” as among the factors it will consider when assessing its next steps.
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