US Fed hikes target rate, signals slower pace

The US Federal Reserve has hiked its target rate by 75 basis points for a fourth consecutive time while signaling that it may slow the pace of future rate increases.

The Federal Open Market Committee's (FOMC) increase in the federal funds rate was the sixth in 2022, taking the target rate to a range of 3.75-4pc from near zero at the beginning of the year.

The pace of future increases "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," the FOMC said in a statement.

Pantheon Macroeconomics chief economist Ian Shepherdson said the statement "strikes us as a clear signal that wave of 75bp hikes is over" unless data turns "unexpectedly awful" before the December Fed meeting.

The FOMC repeated that it expects "ongoing increases in the target range will be appropriate" to stem inflation running at four-decade highs.

The Fed has undertaken the steepest course of rate hikes since the 1980s, warning the measures are likely to inflict "pain" on households and businesses, even suggesting it is willing to risk recession in order to bring down inflation.

By raising the federal funds rate, an inter-bank overnight lending rate whose effects ripple across consumer and business lending rates, the Fed lowers demand for big-ticket items like cars, homes and equipment to rein in pricing pressures.

The US economy grew at a 2.6pc annual pace in the third quarter after contracting in the first half, and many economists are warning that the fast pace of rate increases could cause a recession. Still, unemployment at five-decade lows, solid consumer spending and continued production growth may help the economy maintain its expansion in the face of jittery financial markets, slumping real estate and geopolitical unrest.

By Robert Willis