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Thursday 3 November 2022
Fed unleashes another big rate hike but hints at a pullback

A help wanted sign in a storefront, Tuesday, Nov. 1, 2022, in Bedford, N.Y. The Federal Reserve may reach a turning point this week as it announces what's expected
to be another substantial three-quarter-point hike in its key interest rate. The Fed's hikes have already led to much costlier borrowing rates, ranging from mortgages
to auto and business loans.
(AP Photo/Julia Nikhinson)

Continued from Front central bank would keep 30-year fixed mortgage, years. thereby fueling more infla-
raising rates in the coming just 3.14% a year ago, sur- Still, the policymakers may tion.
Those words indicated that months, possibly to a higher passed 7% last week, mort- feel they can soon slow Ultimately, economists at
the Fed’s policymakers level than it had forecast in gage buyer Freddie Mac the pace of their rate hikes Goldman Sachs expect
may think borrowing costs September. reported. Sales of existing because some early signs the Fed’s policymakers to
are getting high enough to homes have dropped for suggest that inflation could raise their key rate to nearly
possibly slow the economy “We still have some ways to eight straight months. start declining in 2023. Con- 5% by March. That is above
and reduce inflation. If so, go,” Powell said. “And in- sumer spending, squeezed what the Fed itself had pro-
that would suggest that coming data since our last Blerina Uruci, an economist by high prices and cost- jected in its previous set of
they may not need to raise meeting suggests” that the at T. Rowe Price, suggested lier loans, is barely grow- forecasts in September.
rates as quickly as they policymakers might have that falling home sales are ing. Supply chain snarls are
have been doing. to raise rates higher than “the canary in the coal easing, which means fewer Outside the United States,
they previously thought. mine” that demonstrate shortages of goods and many other major central
For now, though, the per- that the Fed’s rate hikes parts. Wage growth is pla- banks are also rapidly rais-
sistence of inflated prices Typically, the Fed raises are weakening a highly teauing, which, if followed ing rates to try to cool in-
and higher borrowing costs rates in quarter-point incre- interest-rate sensitive sector by declines, would reduce flation levels that are even
is pressuring American ments. But after having mis- like housing. Uruci noted, inflationary pressures. higher than in the U.S.
households and has un- calculated in downplaying though, that the Fed’s hikes
dercut the ability of Demo- inflation last year as likely haven’t yet meaningfully Yet the job market remains Last week, the European
crats to campaign on the transitory, Powell has led slowed much of the rest of consistently strong, which Central Bank announced
health of the job market as the Fed to raise rates ag- the economy, particularly could make it harder for its second consecutive
they try to keep control of gressively to try to slow bor- the job market or consumer the Fed to cool the econ- jumbo rate hike, increasing
Congress. Republican can- rowing and spending and demand. omy and curb inflation. rates at the fastest pace in
didates have hammered ease price pressures. “So long as those two com- This week, the government the euro currency’s history
Democrats on the punish- Wednesday’s rate increase ponents remain strong,” reported that companies to try to curb inflation that
ing impact of inflation in coincided with growing she said, the Fed’s policy- posted more job open- soared to a record 10.7%
the run-up to the midterm concerns that the Fed may makers “cannot count on ings in September than in last month.
elections that will end Tues- tighten credit so much as inflation coming down” August. There are now 1.9
day. to derail the economy. The close to their 2% target available jobs for each un- Likewise, the Bank of Eng-
government has reported within the next two years. employed worker, an un- land is expected to raise
Speaking at a news confer- that the economy grew last usually large supply. rates Thursday to try to ease
ence, Chair Jerome Powell quarter, and employers are Several Fed officials have consumer prices, which
avoided sending any clear still hiring at a solid pace. said recently that they A ratio that high means that have risen at their fastest
signal of whether the Fed’s But the housing market has have yet to see meaning- employers will likely contin- pace in 40 years, to 10.1%
next expected rate hike in cratered, and consumers ful progress in their fight ue to raise pay to attract in September. Even as they
December might be only are barely increasing their against rising costs. Infla- and keep workers. Those raise rates to combat infla-
a half-point rather than spending. tion rose 8.2% in September higher labor costs are often tion, both Europe and the
three-quarters. He sought from 12 months earlier, just passed on to customers in U.K. appear to be sliding
to emphasize that the The average rate on a below the highest rate in 40 the form of higher prices, toward recession.q