WASHINGTON (Reuters) – The US Federal Reserve (Fed) hiked its main interest rate by three-quarters of a point on Wednesday in an effort to curb inflation, but suggested future increases in the cost of credit could come at a cost. pace in order to take into account the “cumulative tightening of (its) monetary policy”.
The evolution of the wording of the press release, published after two days of debate, takes into account the ever-changing impact of the rapid rise in the Fed rate and the desire to bring the federal funds rate to a level “sufficiently restrictive to bring inflation back to 2% over time “.
The “hikes” in the target rate “will be appropriate,” the Fed said. “In determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the delay with which policy monetary policy affects economic activity and inflation and economic and financial developments, “he added.
The Fed’s change in vocabulary bears witness to the wide-ranging debate on the impact of monetary policy tightening on the economy and the risk of sharp rate hikes weakening the financial system or triggering a recession.
While its recent rate hikes of 75 basis points were decided in the name of the need to act “quickly” to stem inflation, which is more than three times the Fed’s 2% target, the bank is now entering a more nuanced phase.
The rate target for the fed fund, the Fed’s main monetary policy tool, has increased between 3.75% and 4%, the highest level since the beginning of 2008.
The central bank has raised the rate in the past six meetings, making its fastest rise since the Paul Volcker era in the 1970s and 1980s.
Members of the Federal Open Market Committee (FOMC), the Fed’s monetary policy committee, remain “very alert to inflationary risks,” the Fed added.
He pointed out that the economy appears to be growing at a moderate pace, with job creation still “solid” and low unemployment.
On the financial markets, the Wall Street indices rose, the Standard & Poor’s 500 took 0.51% while it returned 0.3% just before these announcements.
At the same time, the yield on 10-year Treasury bonds lost 4.5 basis points to 4.007% and the dollar fell 0.69% against a basket of benchmark currencies.
The president of the institute, Jerome Powell, is to comment on the committee’s decision, taken unanimously, during a press conference from 18:30 GMT.
(Howard Schneider Report, French version Laetitia Volga, said by Camille Raynaud)
by Howard Schneider and Ann Saphir
