America’s central bank signalled it was ready to ease the pace of interest rate hikes in the face of slowing economic activity.
As the Federal Reserve bumped up its base rate by another 0.75 percentage points, taking it to a range of 3.75 to 4 per cent, it hinted that future rises may be smaller.
But chairman Jerome Powell added that persistently high inflation, and historically low unemployment, meant the final point at which rates settle might end up being higher than expected.
Inflation fight: Federal Reserve chairman Jerome Powell (pictured) said the final point at which rates settle might end up being higher than previously expected
Powell said the ‘time is coming’ where it would be appropriate to shift focus away from the ‘historically fast’ pace of increases, and look more closely at how high the base rate needs to go.
He noted that there is often a lag between the Fed lifting rates, and this having an effect on the economy – implying that he was wary of going too far.
But inflation is still close to a 40-year high, and low joblessness is doing little to alleviate the rise in the cost of living.
Powell said: ‘Incoming data suggests that ultimate level of interest rates will be higher than previously expected.’ Markets had previously seen US rates peaking at 5pc next year.
Central banks have been hiking rates to encourage saving and put a lid on rising prices.
But this also dampens economic activity, leaving the Fed with a tough decision every time its rate-setting committee meets.
The Bank of England is faced with a similar dilemma, as it prepares to deliver yet another rate hike today.
It is expected to opt for its own 0.75 percentage point rise, the largest since Black Wednesday in 1992, taking its base rate to 3 per cent.
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