The U.S. Federal Reserve on Wednesday decided to raise its key interest rate by 0.75 percentage point for the fourth consecutive meeting amid high inflation, but hinted at smaller hikes ahead as it gauges the impact of its aggressive monetary tightening.
Upon concluding a two-day meeting of the policy-setting Federal Open Market Committee, the central bank said it will lift its target range for the federal funds rate to 3.75 to 4.00 percent as widely expected, the highest level in about 15 years.
While noting that ongoing rate increases will be "appropriate" to bring down inflation to its goal of 2 percent over time, the central bank added that it 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" in determining the pace of future increases.
Fed Chairman Jerome Powell said the "time is coming" to discuss the slowing of the pace of the rate hikes.
"It may come as soon as the next meeting (in December) or the one after that," he told a press conference, adding, "No decision has been made. It is likely we'll have a discussion about this at the next meeting."
But he said that it is "very premature" to think about a pause in the rate hikes and that incoming data, such as consumer prices, since the previous meeting in September suggested that "the ultimate level of interest rates will be higher than previously expected."
In the September forecast, the Fed projected its benchmark borrowing rate to come to 4.4 percent at the end of this year and reach 4.6 percent in 2023, before cuts in 2024.
As the Fed continues to grapple with the challenge of tackling high inflation without tipping the world's largest economy into a recession, Powell said the path to a so-called soft landing of the U.S. economy is narrowing, although he believes it is still possible.
The U.S. economy contracted for the first six months of this year, falling into a so-called technical recession of two consecutive quarters of negative growth. Preliminary data, however, showed the country's gross domestic product rose at a 2.6 percent annualized rate in the July to September period.
Prospects of widening divergence in monetary policy between the Fed and the Bank of Japan, which maintains ultralow interest rates, have been leading the yen to weaken against the U.S. dollar.
Facing the highest inflation in about 40 years on the back of Russia's war in Ukraine, the Fed in May lifted the target range for the federal funds rate by a half point for the first time since 2000, after ending in March near-zero interest rates.
In the June meeting, the Fed decided on its largest interest-rate hike since November 1994, moving ahead with a 0.75 point increase. It then approved rate hikes of the same size at its July and September meetings.
When raising the interest rates, the U.S. central bank usually moves the figure by 0.25 point at a time.
