The US Federal Reserve hiked interest rates by 75 basis points on Wednesday, signalling that it is willing to go the distance in the fight against inflation.
The 0.75 percent rate hike, third in a row, brings the federal funds rate to a new range of 3.0 percent to 3.25 percent. This will be the highest federal rates since 2008.
“We have got to get inflation behind us. I wish there were a painless way to do that …. There isn’t” … We want to act aggressively now, and get this job done, and keep at it until its done,” Fed Reserve Chairman Jerome Powell said.
Impact on Growth
The Federal Reserve, which acknowledges the dampening effect of rate hikes on growth, said it expects the US economy to be resilient. It says there will be “modest growth in spending and production” going forward.
For the moment, Powell insisted, bringing inflation under control is the more important goal. “My colleagues and I are strongly committed to bringing inflation back down to our 2% goal,” said Powell.
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“We can’t fail to do that. I mean, if we were to fail to do that, that would be the thing that would be most painful for the people that we serve. So, for now, that has to be our overarching focus,” he added, according to Bloomberg News.
Soft Landing?
Asked about a soft landing, Powell responded by saying that it will be a very challenging prospect and it will largely depend on how soon the price pressures are managed. A soft landing means the economy escapes the pains associated with the continued interest rate hike. Powell, however, isn’t very optimistic about it.
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“If we want to set ourselves up, really light the way to another period of a very strong labor market, we have got to get inflation behind us … What we need to do is get rates up to the point where we’re putting meaningful downward pressure on inflation. And that’s what we’re doing,” Powell said.
