Powell likely to be pressed on whether Fed will slow rate hike

Looming on the Federal Reserve meeting that ends Wednesday is a question of intense interest: How far will the Fed’s inflation fighters raise interest rates, and could they scale back their rate hikes as soon as next month? ?

The Fed is expected to announce a sharp three-quarter point increase in its key short-term rate on Wednesday, the fourth in a row, which will lead to even higher lending rates for many businesses and consumers. What many Fed watchers are expecting is Chairman Jerome Powell hinting at a news conference that the central bank could slow its hikes, perhaps to half a point in December and two quarter-point hikes next year. .

Even at that more moderate pace, the central bank’s benchmark rate would hit 4.75% to 5%, which would be its highest range since 2007, up from the current 3% to 3.25%. Fed officials have stressed that they need to sharply raise rates to rein in inflation, which hit 8.2% in September from 12 months earlier, just shy of a 40-year high. Chronic inflation has also become a central point of attack for Republicans against Democrats in the midterm congressional elections.

So far this year, the Fed has raised its key rate five times in an aggressive pace that has pushed up lending rates across the economy and raised the risk of a recession. The domestic market, in particular, has been hit hard as a result. The average rate on a 30-year fixed mortgage, just 3.14% a year ago, topped 7% last week, mortgage buyer Freddie Mac reported. Existing home sales have fallen for eight straight months.

One reason Fed policymakers may feel they may soon slow their rate hikes is that some early signs suggest inflation could start to ease in 2023. Consumer spending under pressure due to high prices and more expensive loans, it is barely growing. Supply chain entanglements are being eased, which means fewer shortages of goods and spare parts. Wage growth is leveling off, which, if followed by declines, would reduce inflationary pressures.

Still, the labor market remains consistently strong, which could make it difficult for the Fed to cool down the economy and rein in inflation. On Tuesday, the government reported that companies posted more vacancies in September than in August. There are now 1.9 jobs available for every unemployed worker, an unusually large supply.

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