After four straight three-quarter-point interest rate hikes, the Federal Reserve is set to announce a smaller half-point increase in its key rate Wednesday, a first step toward dialing back its efforts to combat inflation.
After four straight three-quarter-point interest rate hikes, the Federal Reserve is set to announce a smaller half-point increase in its key rate Wednesday, a first step toward dialing back its efforts to combat inflation
The Fed's decision Wednesday will follow a government report Tuesday that provided hopeful signs that inflation is finally easing from chronically high levels. Gas prices fell, the cost of used cars, furniture and toys declined, and the costs of services from hotels to airfares to car rentals dropped.
"The data kind of fits with our idea that the Fed will downshift further in February," said Matthew Luzzetti, an economist at Deutsche Bank and a former research analyst at the Fed. "Downshifting helps to maximize their prospects of a soft landing," in which the Fed's rate hikes would slow growth and tame inflation but not tip the economy into a recession.
"What policy rate is sufficiently restrictive we will only learn over time by watching how the economy evolves," said Lisa Cook, one of seven members of the Fed's Board of Governors. "Given the tightening already in the pipeline, I am mindful that monetary policy works with long lags."
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