Fed says 'couple more rate hikes' might help against inflation

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The Federal Reserve expects two further rate increases this year might lead the United States into a "restrictive stance" to combat inflation, chairman Jerome Powell said on Wednesday after the Fed announced its smaller rate increase in around a year as pricing pressures subsided.

The Fed has since March 2022 added 425 basis points to interest rates after they stood at a mere 25 basis points in the wake of the Covid-19 pandemic.

"So, we raised rates to 4.5 percentage points, and we are talking about a couple more rate hikes to get to the level we think is appropriately restrictive," Powell told a news conference.

The Federal Reserve has a modest 2% annual inflation objective. The Consumer Price Index, which measures inflation, increased by 6.5% in the 12 months ending in December, at least three times higher than the central bank's objective.

That was far less than the 9.1% annual rise in June, however, when inflation was at a four-decade high due to government spending on pandemic relief totaling trillions of dollars.

The chairman added that inflation data received over the past three months by the Fed revealed that there was a reduction in the monthly pace of increases. "While recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path."

The Fed announced a 25-basis point rate hike for February, its smallest in almost a year, as inflation cooled in recent months.

This comes after it was revealed that economic growth in the United States has faltered, decreasing to 2.9% in the fourth quarter to cap the year.

The GDP in the United States decreased from the third quarter's 3.2% rate, the Commerce Department said on Thursday as the country is against the ropes when it comes to inflation and rising gas price.

Year on year, economic output grew by 1% in 2022, the Commerce Department added, noting that 2021 saw the output grow by 5.7% and 2019 saw it grow by 2.6%.

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Additionally, the US Treasury said US national outstanding debt exceeded $31 trillion for the first time in its history, at a time when the US is faced with all-time high inflation coupled with high-interest rates, all of which deepen the economic uncertainty problem that the government, businesses, and people are all facing.

Analysts are projecting that the US Federal Reserve's bids to cool down soaring inflation by further hiking interest rates will lead to broad spending cutbacks and job losses.

It was also expected that the Fed would only raise interest rates by 25 basis points for February in a move away from the previous hikes of 75 basis points decided between June and November.

Initially, the Federal Reserve hoped that it could cool down inflation by slowing economic growth than bringing in an all-out contraction. However, the broader toll from a hike in interest rates could potentially take months to materialize, but in the meantime, the housing sector is suffering as mortgage rates increase after residential investment declined in 2022 and home sales declined 18% year on year.

Meanwhile, final sales to private domestic consumers, an index of consumer and business spending gauging demand, cooled in the second and third quarters of 2022 from previous quarters, according to the Commerce Department.