Fed Hikes Again by 75 Basis Points, Hints at Entering End Phase

Officials, as expected, said they will continue to reduce their holdings of Treasuries and mortgage-backed securities as planned — a pace amounting to about $1.1 trillion a year.

The higher rates go, the harder the Fed’s job becomes. Having been criticized for missing the stubbornness of the inflation surge, officials know that monetary policy works with a lag and that the tighter it becomes the more it not only slows inflation, but economic growth and hiring too.

Fed forecasts in September implied a downshift to 50 basis points in December, according to the median projection. Those projections showed rates reaching 4.4% this year and 4.6% next year, before cuts in 2024.

Additional Data

No fresh estimates were released at this meeting and they won’t be updated again until officials gather Dec. 13-14, when they will have two more months of data on employment and consumer inflation in hand.

Economists surveyed by Bloomberg late last month were looking for a 50 basis-point increase in December, but almost a third had penciled in a fifth 75 basis-point hike. They saw rates peaking at 5% next year.

Investors saw a similar path: Pricing in financial futures markets earlier on Wednesday was split between a 50 and 75 basis-point increase in December, with rates peaking slightly above 5% during 2023.

The Fed’s most forceful tightening campaign since the 1980s is beginning to cool some parts of the economy, particularly in housing. But policymakers have yet to see meaningful progress on inflation.

Nor has there been a significant loosening in the job market, with unemployment in September matching a half-century low of 3.5%.

Employer demand for workers has also remained strong, with 1.9 job vacancies for every unemployed person in America, according to Labor Department data Tuesday.

(Photo credit: Bloomberg)