US: Fed approves quarter-point hike, indicating improved inflation outlook

Business Thursday 02/February/2023 06:51 AM
US: Fed approves quarter-point hike, indicating improved inflation outlook

Washington: The United States Federal Reserve approved a quarter-point interest rate hike on Wednesday (local time), indicating progress in Central Bank's fierce battle with inflation, CNN reported.

This decision comes after months of increasing the rate with the intention to cool the economy and marks the return to a more traditional interest-rate policy. The Fed is targeting the hikes to bring down inflation, despite recent signs of slowing, which is still running near its highest level since the early 1980s.

In his post-meeting press conference, Fed Chair Jerome Powell signalled that while there's still a long way to go in the fight against inflation, he believes the trend is moving in the right direction, according to CNN.

Still, Powell warned economy watchers that "the job is not fully done" and that the labor market remains too tight for his liking. it would be "very premature" to think "we really got this," he said, adding that unless the economic trajectory changes drastically, he doesn't expect to cut rates this year.

Earlier, Michelle Bowman, federal reserve's member of the Board of Governors, said the institution will continue tightening monetary policy by raising key interest rates even though there has been a decline in consumer inflation.

"In recent months, we've seen a decline in some measures of inflation but we have a lot more work to do, so I expect the FOMC will continue raising interest rates to tighten monetary policy, as we stated after our December meeting," Bowman said earlier this week at the Florida Bankers Association Leadership Luncheon Events in Miami, Florida.

"My views on the appropriate size of future rate increases and on the ultimate level of the federal funds rate will continue to be guided by the incoming data and its implications for the outlook for inflation and economic activity," he said.

The US Federal Reserve in its latest monetary policy meeting raised interest rates by 50 basis points (bps).

The US central bank's policy rate is now in a target range of 4.25-4.50 per cent, the highest level in 15 years, and notably, it was near zero in the early part of 2022.

Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

Further, Bowman said she will be looking for signs that inflation has peaked and consistent indications that it is on a downward path before determining the appropriate size of future rate hikes.

In December, consumer inflation in the US moderated to 6.5 per cent from 7.1 per cent the previous month but still is way above the 2 per cent target.