In a bid to rein in spiraling inflation, the Federal Reserve continued with a fourth consecutive record high-interest rate hike on Wednesday, increasing rates by 0.75 percentage points.
However, as the Fed’s months-long campaign gradually increases the possibility of a recession in 2019, the key question at hand is whether it will slow down rate hikes in December or postpone them until inflation clearly shows symptoms of slowing.
The Fed made it clear in a statement following a two-day meeting that additional rate rises are on the way to bring annual inflation down to its target of 2%.
“The (Fed’s policymaking committee) anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” the Fed said in the statement.
But Fed officials also hinted they could slow the pace of the hikes in light of the large increases they already have approved and the typical lag between the Fed’s actions and their effects on the economy.
“In determining the pace of future increases in the target range, the 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.”
Is inflation going down from the Fed’s interest rate hikes?
Since the Fed’s last meeting six weeks ago, there have been some hints that inflation soon could ease. U.S. monthly job growth has fallen from 537,000 in July to 263,000 in September, though that’s still a solid number. And private-sector wages and salaries grew 5.2% annually in the July-September period, still historically high but down from 5.7% the previous quarter.
The most widely followed inflation gauge, the consumer price index, showed that overall prices in September were up 8.2% from a year earlier, down from a four-decade high of 9% in June.
But those developments have been outnumbered by signs that inflation will likely drift down just slowly. The Fed’s preferred inflation measure, which excludes food and energy costs, rose to 5.1% in September from 4.9% the previous month. Consumers’ inflation expectations in one and five years – which often affect actual price increases — rose last month after falling previously.
And job openings surged from 10.3 million to 10.7 million in September after coming off record highs in the spring and summer. That could again put upward pressure on wages as employers compete for a pool of workers that’s still limited compared with the pre-pandemic level.
In its statement Wednesday, the Fed said, “Job gains have been robust in recent months, and the unemployment rate has remained low (at 3.5%). Inflation remains elevated…”
“We aren’t going to declare victory until we really see convincing evidence, compelling evidence that inflation is coming down,” Powell told reporters in June.
