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Fed to hold interest rates longer to keep inflation down


WASHINGTON (AP) — The Federal Reserve (Fed) will set interest rates higher than previously expected and will keep them at that level for a long time, it said Wednesday. Emphasize the Fed’s single-minded focus On fighting stubborn inflation.

But Powell also hinted in a speech at the Brookings Institution that the Fed could raise key rates by half a percentage point at its December meeting. Subsequent rate hikes, based on his previous Fed projections, could fall to a quarter of a percentage point from what he was before at the February and March meetings.

Powell said the Fed was trying to raise interest rates just enough to slow economic, job and wage growth, but not enough to send the U.S. into recession.

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This year, it raised interest rates six times to a range of 3.75% to 4%, the highest in 15 years.their increase Significant increase in mortgage interest rates cause home sales plummetinghas also raised the cost of most other consumer and business loans.

“We think slowing down at this point is a good way to balance the risks,” Powell said, adding that “the December meeting on December 13 and the December meeting on December 13 is the right time to slow down the pace of rate hikes.” It may come as soon as possible,” he said. 14.

financial market responded to Powell’s proposal and repulsed Its rate of increase will slow down. The S&P 500 is up 122 points, or 3.1%. He was down before Powell could speak.

But Powell stressed that the reduction in rate hikes should not be taken as a sign that the Fed will soon end its inflation fight.

“Returning price stability will likely require keeping (interest rates) at a restrictive level for some time,” Powell said. “History strongly cautions against easing policy prematurely.”

Powell acknowledged there was some good news on the inflation front, with prices of commodities such as cars, furniture and appliances receding. He also said rent and other housing costs, which account for about a third of the consumer price index, are likely to fall next year.

But the costs of services, including dining out, travel and health care, are still rising rapidly and will probably be much harder to contain, he said.

“Despite some encouraging progress, we still have a long way to go to restore price stability,” Powell said.

The Fed chairman cited strong hiring and wage growth as the main factors keeping service costs high. On average, salaries have risen about 5% over the past year before inflation, the fastest pace in his 40 years.

“We want wages to rise significantly,” Powell said, “but they must rise over time at a level consistent with 2% inflation. said.

He said it would probably be difficult to slow wage growth as the robust wage growth has been largely driven by the labor shortage that began during the pandemic and shows no signs of ending any time soon.

Fed officials hoped the number of people working and looking for work would rebound stronger as the pandemic abated, but that hasn’t happened.

Powell said the worker shortage reflected a surge in early retirees, COVID-19 killing hundreds of thousands of working-age people, a sharp drop in immigration and slowing population growth. .

With a limited supply of workers, the Federal Reserve’s higher interest rate policy will need to reduce firms’ demand for new employees to meet low levels of supply, he added.

Economists generally expect the economy to slip into recession, meaning more layoffs and higher unemployment.

But Powell, speaking during a question-and-answer session, offered hope that employers could cut short the near future. Posting a record number of job openingsInstead of laying off large numbers of workers,

According to government reports early wednesday, companies have cut about 1.5 million job vacancies since March, but there are still about 1.7 job openings for every unemployed person. This ratio has forced many companies to offer higher salaries to attract and retain staff.

Still, Powell said employers could cut more jobs, with limited job cuts, as the Fed raises interest rates and slows borrowing and spending.

“I continue to believe there is a soft landing or a path to a soft landing… unemployment will rise, but not a hard landing, not a deep recession.

According to last month’s inflation report, prices were 7.7% YoY increase in October, straining the budgets of many families. However, this is down from her June peak of 9.1%.

Fed officials hope that tightening credit will slow consumer spending and business spending, lower job and wage growth, and keep inflation under control. Powell said the Fed’s efforts had slowed demand and that the slowdown should be maintained for a “long term.”

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission. Fed to hold interest rates longer to keep inflation down

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