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The new language in the policy statement took note of the still-evolving impact that the Fed's rapid pace of rate hikes has set in motion, and a desire to hone in on a level for the federal funds rate "sufficiently restrictive to return inflation to 2 per cent over time"
Photo Credit : Reuters
The Federal Reserve on Wednesday raised interest rates by 75 basis points as it continues its battle against the worst inflation in 40 years. However, the US central bank signalled that future increases in borrowing costs could be made in smaller steps to account for the "cumulative tightening of monetary policy" it has enacted so far.
The policy statement acknowledged the still-evolving impact of Fed's rapid pace of rate hikes and a desire to hone in on a level for the federal funds rate "sufficiently restrictive to return inflation to 2 per cent over time."
"Ongoing increases in the target range will be appropriate," the Fed said at the end of its two-day meeting.
Officials said, "In determining the pace of future increases in the target range, the (Federal Open Market) Committee 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 its recent rapid increases have been done to move "expeditiously" to catch up with inflation running at more than three times the Fed's 2 per cent target, the central bank is now entering a more nuanced phase - fine-tuning instead of "front-loading."
The policy decision set the target federal funds rate between 3.75 per cent and 4.00 per cent, the highest since early 2008.
The US central bank has raised rates at its last six meetings beginning in March.
The Fed said officials remained "highly attentive to inflation risks," opening the door to further hikes.
The fresh language comes amid still-strong readings on inflation and jobs, even as sectors like housing and manufacturing have slowed substantially.
US stocks ended sharply lower post the outcome of the Fed meeting as investors had anticipated a 75-basis point rate hike, but they also waited for a signal, a willingness by the central bank to slowdown the pace of rate hikes at its December meeting
Fed Chair Jerome Powell's comment in a press conference that it was "very premature" to think about pausing rate hikes spooked Wall Street.
The Dow Jones Industrial Average fell 505.44 points, or 1.55 per cent, to 32,147.76, the S&P 500 lost 96.41 points, or 2.50 per cent, to 3,759.69, and the Nasdaq Composite dropped 366.05 points, or 3.36 per cent, to 10,524.80.
(With Reuters Inputs)