The head of the US Federal Reserve had promised further interest rate hikes.
(Photo: Bloomberg)
Washington The US Federal Reserve is signaling a slower pace of monetary tightening in 2023 after a series of aggressive rate hikes to fight inflation. As can be seen from the minutes of the December meeting published on Wednesday, the monetary watchdogs see “considerable progress” in curbing inflation as a result of their tight interest rate policy last year.
The task now is to balance the fight against high inflation and the danger of an excessive economic slowdown. According to most monetary policymakers, “flexibility and optionality” are required on the way to an even more dampening course for the economy: This suggests that the pace of interest rate hikes at the Fed meeting in early February could be curbed – to a quarter of a percentage point.
The US Federal Reserve raised the key interest rate by half a percentage point in December – to the new range of 4.25 to 4.50 percent. Previously, it had taken even larger interest rate hikes of 0.75 percentage points four times in a row.
Fed Chair Jerome Powell has signaled further hikes in 2023 given inflationary pressures are expected to remain high. The Fed wants to bring inflation down to the target of 2.0 percent. Most recently, however, the rate of inflation was still well above that at 7.1 percent, even though inflation has been on the decline for months.
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On the futures markets it is expected that interest rates will be raised by a total of half a percentage point in the coming months before the central bank takes a break. Although the December minutes show that not a single monetary authority has a rate cut on the horizon for 2023, the futures markets still expect it in the second half of the year.
In their interest rate outlook from December, the Fed bosses estimated an average key interest rate of 5.1 percent for the end of 2023. And the head of the Minneapolis Fed district, Neel Kashkari, only wants to take a break from a level of 5.4 percent.
More: US inflation falling – but is a recession imminent?