Federal Reserve Chair Jerome Powell hints that the Fed has plans to decrease the rate of interest-rate increases over the next month.
- Though Powell added that borrowing costs need to go up in order to keep inflation under control, slower interest rates signal some coming relief for consumers.
- The Fed is expected to raise the interest rates 50 basis points in December rather than the 75 basis points that have been announced the last four times.
- More moderate increases signal that the Fed is seeing movement on inflation.
- “The time for moderating the pace of rate increases may come as soon as the December meeting. Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level,” Powell says.
Why it’s news
The Fed has attempted to slow inflation over the last several months by increasing interest rates. The high interest rates have slowed corporate investment, and put pressure on consumers’ pocketbooks by raising the cost of car loans and home mortgages.
Following Powell’s comments, 2-year Treasury yields fell and the S&P 500 Index closed the day up more than 3%
Interest rates are still expected to be high. Powell added in his remarks that the overall interest rate may be higher than previously estimated in September. New projections for future interest rates will be made in the mid-December meeting.
Powell also added that he doesn’t foresee any reductions in the near future. Some experts expect the Fed to pause hikes when it reaches 5%.
Other economists are predicting a recession in the next year, but Powell still hopes for a soft landing—though he admits this is becoming more unlikely.
Despite the Fed’s attempts to slow consumer spending, the U.S. economy has continued growing, leading to the need for more dramatic interest rate hikes.
However, there are some signs the economy is beginning to slow. Monthly employment reports set to release on Friday are expected to show the slowest growth in the last two years.