WASHINGTON: The Federal Reserve (FED) delivered another steep interest rate increase on Wednesday, as expected, with its move to cool red-hot inflation taking on more weight amid the political maelstrom ahead of key US midterm elections.
With high inflation squeezing American families of all political stripes, President Joe Biden faces a battle to avoid losing control of both chambers of Congress.
The Fed’s aggressive rate hikes this year so far have not had a noticeable impact on prices, but increase the risk the US economy could suffer a recession even as the job market remains strong.
The US central bank raised the benchmark interest rate by 0.75 percentage point — the fourth straight increase of that size and the sixth hike this year — in its all-out battle to tame inflation not seen since the 1980s.
The policy-setting Federal Open Market Committee (FOMC) signaled that more increases will be needed to tamp down rising prices but it will consider the impact on the economy when deciding on the pace of future moves — opening the door to the possibility it will implement smaller steps in coming months.
The latest three-quarter percentage point increase takes the benchmark interest rate to 3.75-4.0 percent, the highest since January 2008.
In a statement at the conclusion of its two-day policy meeting, the US central bank said more rate hikes “will be appropriate” to achieve a “sufficiently restrictive” level to tamp down inflation.
However, it added that, “in determining the pace of future increases” the Fed 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.”
While the housing market has cooled sharply amid higher borrowing costs, key inflation measures show prices continue to rise and the labor market remains tight, with job openings rising and private hiring accelerating in October.
Political pressure
As central bankers walk a tightrope fighting inflation while avoiding tipping the economy into a recession, politicians are ramping up pressure on Fed officials amid growing worries of an economic downturn.
Joe Biden faces growing voter frustration over high inflation and signs a “red wave” that could sweep the opposition Republicans to power in the House and Senate.
Republicans put the blame for inflation and slower growth squarely on Biden, while the president’s Democrats worry the Fed moves will lead to higher unemployment.
Democratic Senator Sherrod Brown urged the Fed last month to show commitment to its dual mandate — of promoting maximum employment and stable prices — and moderate the rate hikes.
“For working Americans who already feel the crush of inflation, job losses will make it much worse,” Brown said in a letter to Powell.
But Powell has argued that allowing high inflation to become entrenched would inflict even more pain on American families and workers.
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