Fed Raises Rates For 13th Time In a Row
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
WASHINGTON – The Federal Reserve raised official interest rates a 13th straight time yesterday, as expected, and said that it will likely continue to raise rates at a “measured” pace.
But by tweaking key language in its policy statement and removing its assessment that policy is accommodative, policymakers signaled that the year-and-a-half long tightening campaign may be approaching its final phase as rates reach a more economically neutral level.
The U.S. central bank voted unanimously to raise the Fed funds rate by 25 basis points to 4.25%, the highest level since May 2001. It also lifted the largely symbolic discount rate by one-quarter point to 5.25%.
Yet for the first time since the tightening cycle began in mid-2004, the central bank altered key language in its accompanying statement about the outlook for policy, suggesting that policy will be taken off automatic pilot and become more reactive to incoming data.
Instead of the phrase, “policy accommodation can be removed at a pace that is likely to be measured” – a fixture since mid-2004 that that became synonymous with steady, quarter-point rate hikes – the Fed stated yesterday that “further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.”
“They managed to be as vague and as pragmatic as possible,” the chief economist at JPMorgan Asset Management, Anthony Karydakis, said. The message to financial markets, he said, is “the Fed is going to 4.5% in January and beyond that it’s noncommittal.”
Speculation that a change was in the offing was fueled when the Fed’s November 1 meeting minutes stated, “several aspects of the statement language would have to be changed before long, particularly those related to the characterization of and outlook for policy.”
To be sure, the economy’s strength, coupled with energy-fueled inflationary pressures, should spur another 25 basis point rate hike to 4.5% at the January 31 Fed meeting, which will be Alan Greenspan’s last after 18 years as Fed chairman.
