Fed raises rates but hints at a pullback

 The Fed raised its benchmark interest rate by three-quarters of a percent for the fourth straight day Wednesday but signalled it may soon reduce rate hikes.

The Fed hiked its short-term rate to 3.75 to 4%, the highest level in 15 years. It was the central bank's sixth rate hike this year, raising mortgages and other consumer and commercial loans and the risk of a recession.

The Fed said it may soon increase rates more slowly. It said it will assess the cumulative impact of its rate hikes in coming months. It observed that rate hikes slow GDP and inflation.

The Fed's policymakers may think high borrowing costs will slow the economy and limit inflation. If so, they shouldn't hike rates as quickly.

Inflation and increasing borrowing costs are hurting American households and limiting Democrats' ability to campaign on the employment economy as they strive to keep control of Congress. In the run-up to Tuesday's midterm elections, Republicans have pounded Democrats on inflation.

Fed's newest policy statement was released Wednesday. Many economists expect Fed Chair Jerome Powell to suggest that December's projected rate hike may be merely a half-point.

In quarter-point increments, the Fed boosts rates. Powell has led the Fed to boost rates quickly to restrict borrowing and spending and ease price pressures after misjudging inflation last year as transitory.

Wednesday's rate hike coincided with concerns the Fed may tighten credit too much and ruin the economy. Last quarter's economy grew, and firms are continuing recruiting. The housing market has collapsed, and consumers aren't spending much.

The average 30-year fixed mortgage rate reached 7% last week, mortgage buyer Freddie Mac revealed. Existing-home sales have fallen for eight months.

T. economist Blerina Uruci Rowe Price said decreasing home sales are "the canary in the coal mine" that shows Fed rate hikes are harming a rate-sensitive sector like housing. Uruci remarked that the Fed's hikes haven't affected the job market or consumer demand.

“As long as these two components stay strong,” she said, Fed policymakers “cannot bet on inflation dropping down” to 2% in two years.

Fed officials say they haven't seen real progress in fighting increasing prices. September inflation was 8.2%, just below the highest rate in 40 years.

Early signals imply inflation could start decreasing in 2023, so authorities may soon slow rate hikes. High costs and expensive loans are squeezing consumer spending. Supply chain bottlenecks are reducing, meaning fewer product shortages. If wage growth decreases, inflationary pressures will ease.

The strong job market makes it tougher for the Fed to cool the economy and limit inflation. September had more job vacancies than August, according to the government. There are 1.9 jobs for every unemployed person, an abnormally high supply.

A high ratio suggests firms will enhance wages to attract and retain workers. Higher labour costs are generally passed on to buyers, fueling inflation.

Goldman Sachs economists expect the Fed to boost its benchmark rate to 5% by March. That's higher than the Fed's September forecast.

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