Fed lifts rate by quarter-point but says inflation is easing

WASHINGTON (AP) — The Federal Reserve extended its fight against high inflation Wednesday by raising its key interest rate a quarter-point, its eighth hike since March. And the Fed signalled that even though inflation is easing, it remains high enough to require further rate hikes.

At the same time, Chair Jerome Powell said at a news conference that the Fed recognises that the pace of inflation has cooled, a signal that it could be nearing the end of its rate increases. The stock and bond markets rallied during his news conference, suggesting that they anticipate a forthcoming pause in the Fed's credit tightening.

Throughout his remarks Wednesday, Powell sounded a dual message. He frequently acknowledged signs that high inflation is slowing.

“We can now say I think for the first time,” he said, “that the disinflationary process has started.”

Yet he also stressed that it was too soon to declare victory over the worst inflation bout in four decades: “We will need substantially more evidence to be confident that inflation is on a long, sustained downward path.”

The Fed's rate increase Wednesday, though smaller than its half-point hike in December and the four three-quarter-point hikes before that, will likely further raise the costs of many consumer and business loans and the risk of a recession.

In a statement, Fed officials repeated language they've used before, that “ongoing increases in the (interest rate) target range will be appropriate.” That is widely interpreted to mean they will raise their benchmark rate again when they next meet in March and perhaps in May as well.

The Fed chair said that so far, much of the inflation slowdown reflects the prices of goods, notably gas but also furniture, appliances and other finished products that have benefited from an unravelling of supply chain snarls.

But Powell reiterated his concern that prices for services — restaurant meals, health care, airline tickets and the like — are still surging. He has said he pays particular attention to services prices because they are labour-intensive. As a result, robust wage gains can keep services prices elevated and perpetuate high inflation.

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