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US Federal Reserve OKs Small Interest Rate Hike, Expects More Jumps


FILE - An American flag flies over the Federal Reserve Board Building in Washington, May 4, 2021.
FILE - An American flag flies over the Federal Reserve Board Building in Washington, May 4, 2021.

The Federal Reserve raised its target interest rate by a quarter of a percentage point on Wednesday, yet promised "ongoing increases" in borrowing costs as part of its still unresolved battle against inflation.

"Inflation has eased somewhat but remains elevated," the U.S. central bank said in a statement that acknowledged the progress made in lowering the pace of price increases from the 40-year highs hit last year.

Russia's war in Ukraine, for example, was still seen as adding to "elevated global uncertainty," the Fed said. But policymakers dropped the language of earlier statements citing the war as well as the COVID-19 pandemic as direct contributors to rising prices.

Still, the Fed said the U.S. economy was enjoying "modest growth" and "robust" job gains, with policymakers still "highly attentive to inflation risks."

"The [Federal Open Market] Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time," the Fed said.

The decision lifted the benchmark overnight interest rate to a range between 4.50% and 4.75%, a move widely anticipated by investors and flagged by U.S. central bankers ahead of this week's two-day policy session.

But in keeping the promise of more rate hikes to come, the Fed pushed back against investor expectations that it was ready to flag the end of the current tightening cycle as a nod to the fact that inflation has been steadily declining for six months.

The statement did indicate that any future rate increases would be in quarter-percentage-point increments, dropping a reference to the "pace" of future increases and instead referring to the "extent" of rate changes.

But those, it said, would take into account how the policy moves so far had impacted the economy, language that linked further rate increases to the evolution of upcoming economic data.

The Fed hopes it can continue nudging inflation lower to its 2% target without triggering a deep recession or causing a substantial rise in the unemployment rate from the current 3.5%, a level rarely seen in recent decades. Inflation, based on the Fed's preferred measure, slowed to a 5% annual rate in December.

The U.S. central bank did not issue new economic projections from its policymakers on Wednesday.

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    Reuters

    Reuters is a news agency founded in 1851 and owned by the Thomson Reuters Corporation based in Toronto, Canada. One of the world's largest wire services, it provides financial news as well as international coverage in over 16 languages to more than 1000 newspapers and 750 broadcasters around the globe.

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