San Francisco Frontiers - Fed delivers another steep rate hike with more to come

With high inflation squeezing American families of all political stripes, President Joe Biden faces a battle to avoid losing control of both chambers of Congress.

The Fed's aggressive rate hikes this year so far have not had a noticeable impact on prices, but increase the risk the US economy could suffer a recession even as the job market remains strong.

The US central bank raised the benchmark borrowing rate by 0.75 percentage point -- the fourth straight increase of that size and the sixth hike this year -- in its all-out battle to tame inflation not seen since the 1980s.

The policy-setting Federal Open Market Committee (FOMC) signaled that more increases will be needed to tamp down rising prices but it will consider the impact on the economy when deciding on the pace of future moves -- opening the door to the possibility it will implement smaller steps in coming months.

The latest three-quarter percentage point increase takes the benchmark lending rate to 3.75-4.0 percent, the highest since January 2008.

In a statement at the conclusion of its two-day policy meeting, the US central bank said more rate hikes "will be appropriate" to achieve a "sufficiently restrictive" level to tamp down inflation.

However, it added that, "in determining the pace of future increases" the Fed will "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

Analysts will scrutinize Fed Chair Jerome Powell's press conference, due to start at 1830 GMT, for more clarity on whether the FOMC is considering easing off on its aggressive moves or even pausing the rate hikes to assess the impact on prices and the overall economy.

But he faces a difficult chore to balance concerns the Fed is moving too fast, while reaffirming its legal mandate to bring down inflation.

"It will be a challenge for the Fed to signal an eventual shift in policy while also communicating a steadfast commitment to bringing down inflation," Nancy Vanden Houten of Oxford Economics said in an analysis ahead of the meeting.

She noted that a number of Fed officials in recent weeks have suggested it is time for the central bank to consider slowing the pace of increases to guard against raising rates too far.

While the housing market has cooled sharply amid higher borrowing costs, key inflation measures show prices continue to rise and the labor market remains tight, with job openings rising and private hiring accelerating in October.

- Political pressure -

As central bankers walk a tightrope fighting inflation while avoiding tipping the economy into a recession, politicians are ramping up pressure on Fed officials amid growing worries of an economic downturn.

Biden faces growing voter frustration over high inflation and signs a "red wave" that could sweep the opposition Republicans to power in the House and Senate.

Republicans put the blame for inflation and slower growth squarely on Biden, while the president's Democrats worry the Fed moves will lead to higher unemployment.

Democratic Senator Sherrod Brown urged the Fed last month to show commitment to its dual mandate -- of promoting maximum employment and stable prices -- and moderate the rate hikes.

"For working Americans who already feel the crush of inflation, job losses will make it much worse," Brown said in a letter to Powell.

But Powell has argued that allowing high inflation to become entrenched would inflict even more pain on American families and workers.

Oanda analyst Craig Erlam said it may be too late to avoid a recession "but the Fed has been very clear from the start that while a soft landing is the desirable and attainable outcome, getting inflation under control is the primary focus."

Y.Harris--SFF