US interest rates rose to their highest level in more than 14 years in September as central bank policymakers sought to curb persistent inflationary pressures.
- The federal funds rate was increased to a target range of 3% to 3.25%
- Policymakers expect a sustained period of “below-trend” growth
- The Fed has raised rates by three percentage points so far this year
With further increases on the cards , Federal Reserve (Fed) Chair Jerome Powell warned: “The historical record cautions strongly against prematurely loosening policy”. The pace of further tightening will continue to depend on economic data and the economic outlook.
“The historical record cautions strongly against prematurely loosening policy” (Fed Chair Powell)
The annualised rate of consumer price inflation in the US eased slightly in August, rising by 8.3% compared with July’s rate of 8.5%. Nevertheless, inflation remained significantly above the Fed’s target of 2%, underpinned by strong growth in housing, food and medical care costs. Chair Powell acknowledged that high inflation “imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation”.
In their bid to reduce inflation, Fed policymakers anticipate a sustained period of “below-trend” growth alongside softer conditions in the labour market. The FOMC now expects interest rates to peak at 4.6% next year, with the rate of unemployment forecast to rise to 4.4%.
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