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US Fed raises interest rates by 0.25 points, as inflation eases

  • February 02, 2023

The US Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point, continuing a more moderate course following a series of aggressive hikes to tackle inflation. 

Inflation has “eased somewhat but remained elevated,” said a statement from the policy-making Federal Open Market Committee (FOMC).

The statement, which came at the end of a two-day policy meeting, added that recent indicators “point to modest growth in spending and production” as economic activity eases.

This put the rate’s target range at 4.50% to 4.75%, up from virtually zero in early 2022. The quarter-point hike is the smallest increase since the Fed first hiked rates in March last year and also marks a return to the more traditional interest rate policy.

Prior to December, the central bank raised rates by 75 basis points four times in a row in an usually aggressive approach that sought to cool the economy.

Inflation in the US closed out in 2022 with a 6.5% annual reading, according to the consumer price index. The Fed’s strict monetary policy appeared to be working, since the rate was down from 7.1% in November and a 9.1% peak in June.

Jerome Powell urges caution

Federal Reserve Chairman Jerome Powell on Wednesday urged caution, saying that while recent developments are encouraging, they will “need substantially more evidence to be confident that inflation is on a sustained, downward path.”

Powell, during a press conference, said it was evident “for the first time that the disinflationary process has started. We can see that and we see it really in goods prices so far.”

The bank chair said he expected growth at a “subdued pace” this year and doesn’t expect the Fed to cut rates, as some expect.

“If we do see inflation coming down much more quickly, that will play into our policy setting, of course,” Powell said. “We have to complete the job. That’s what we’re here for,” he added.

The International Monetary Fund (IMF), in its latest economic forecast, urged central banks to keep up their fight against inflation, despite initial successes.

rm/nm (Reuters, AP) 

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