By Jack Barnett
The US Federal Reserve today looked past the ongoing wobbles in the global banking system and hiked interest rates for the ninth time in a row, extending its aggressive fight against inflation.
Chair Jerome Powell and the rest of the federal open market committee (FOMC) today bumped the world’s most important interest rate 25 basis points higher to a range of 4.75 per cent and five per cent.
The move signals the Fed is more concerned about stopping inflation from sticking around rather than easing pressure on the global banking network that has seen Credit Suisse, one of the oldest financial institutions, sold off to its main rival UBS in a shotgun marriage over the weekend.
The inflation fight still has a “long way to go and is likely to be bumpy,” Powell said.
However, as a result of the banking volatility tightening credit conditions, thereby doing some of the Fed’s work, Powell said “ongoing” rate increases will not be necessary, although “some additional policy firming” could be.
He added the FOMC did consider pausing rate rises at the latest meeting.
Markets reckon the monetary policy committee (MPC) will also kick UK interest rates 25 basis points higher to a post-financial crisis high of 4.25 per cent.
Such a move would mark the eleventh time in a row the MPC has tightened policy, but would be a climb down from a series of at least 50 basis point increases.
However, the Fed, globe’s most influential central bank, singled out the recent chaos in the banking network, telling investors it is expected “to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation”.
US inflation has been steadily falling since its summer peak of more than nine per cent and is now running at 6.4 per cent, although core inflation remains stubbornly high, luring the Fed into its latest hike.
The FOMC “remains highly attentive to inflation risks,” the rate decision statement said.
Fresh projections of where Fed officials reckon rates are headed – known as the “dot plot” – signals just one more 25 point hike is in the pipeline this year.
Wall Street responded well to the news, with the three major Nasdaq, S&P 500 and Dow Jones indexes all up. But the US dollar slid around half a percentage point against the world’s leading currencies.
Numbers out from the Office for National Statistics today showed UK inflation is running above the Bank of England’s expectations and far ahead of the US’s inflation rate.
It held in the double digits last month at 10.4 per cent, smashing the Bank and City’s expectations. It is currently the highest inflation rate in the rich world.
Core inflation – a more accurate measure of underlying price pressure – jumped to more than six per cent, while food prices rose by a record more than 18 per cent.
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