The US central bank has slowed the pace of interest rate hikes further but indicated more rises are on the way despite official figures suggesting price pressures have peaked in the world’s largest economy.
The Federal Reserve announced the decision hours before its counterparts in the UK and Europe reveal their next moves in the battle against inflation.
The Fed, as it’s known, raised its target interest rate by a quarter of a percentage point – as financial markets expected – following an aggressive set of increases last year to tame decades-high inflation.
It was lifted to a range between 4.50% to 4.75%.
But US shares lost ground and the dollar strengthened when its statement confirmed that policymakers were to maintain an iron grip on inflation risks.
“The 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,” it read.
The quarter point rise was the smallest increase since last March when the Bank made its first move against surging US inflation as post-pandemic price rises globally were exacerbated by the war in Ukraine.
The Fed had imposed four consecutive hikes of 0.75 percentage points prior to its last meeting in December, when the pace was reduced to a half percentage point rise.
It was at that point, before Christmas, when inflationary pressures were truly seen by policymakers as easing from the four-decade highs seen earlier in 2022 because so-called core inflation had slowed.
The cost of things such as oil, gas and many other commodities – outside of central bank control – went through the roof.
These increases later became ingrained in prices across Western economies as costs were passed down supply chains, pressuring central banks to cool economic activity and discourage wage increases that could inflame the inflation problem.
While economists believe inflation has also peaked in the UK and across Europe, the continent’s exposure to the loss of Russian energy flows has inflation more stubborn.
The Bank of England is widely expected to lift its rate from 3.5% to 4% on Thursday as a result.
The European Central Bank, which sets the rate path for the 20 countries which use the euro, is expected to impose the same hike in its main deposit rate.