Fed announces sixth consecutive hike in US interest rates to fight inflation

The Federal Reserve stepped up its fight against a 40-year high in US inflation on Wednesday, announcing its fourth consecutive three-quarters of a percentage point hike in interest rates.

With the cost-of-living crisis battering consumers and Joe Biden’s political fortunes, Fed officials have now imposed six rate rises in a row, the sharpest increases in interest rates since the 1980s, when inflation touched 14 per cent and rates rose to nearly 20 per cent.

The Fed’s latest increase brings the federal funds rate – which acts as a benchmark for everything including business loans, credit card and mortgage rates – to between 3.75 per cent and 4 per cent after sitting at zero for more than a year during the coronavirus pandemic.

It comes as hiring at US companies rose in October by more than forecast. Private payrolls rose 239,000 last month after a revised 192,000 gain in September, according to data from ADP Research Institute in collaboration with Stanford Digital Economy Lab. The median forecast in a Bloomberg survey of economists called for a 185,000 advance.

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The central bank does not expect inflation or interest rates to reach the levels seen in the 1980s. Chairman Jerome Powell has indicated that the Fed expects rates will reach 4.4 per cent by the end of the year and start coming down until 2024.

Speaking at a news conference following the Federal Open Market Committee meeting, Mr Powell said that when it comes to moving to smaller rate rises from the three-quarter point moves that have defined recent rate hikes, “that time is coming and it may come as soon as the December meeting,” but adding “no decision has been made” yet on what action to take at the next FOMC gathering.

Fed officials had expected inflation to decline this year. But inflation – which the Fed initially dismissed as “transitory” – remains stubbornly high. In September, the costs of goods and services were 8.2 per cent higher compared with a year ago, well above the Fed’s target inflation rate of 2 per cent.

The Fed’s move comes as governments around the world are struggling with a surging cost-of-living crisis. Soaring food prices have pushed inflation over 10 per cent in the UK and on Thursday the Bank of England is expected to raise its base rate by as much as one percentage point to 3.25 per cent. Last month, the European Central Bank also increased its cost of borrowing to tackle inflation, now at a record high of 10.7 per cent.

In a statement, the Fed said “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 per cent”.

But it added that “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”. – Guardian