The Federal Reserve on Wednesday approved the fourth straight jumbo increase in its benchmark interest rate, extending a rapid pace of hikes that brings the rate to the highest level in 15 years. For the first time, the central bank also signaled it would watch closely whether rapidly rising borrowing costs might damage the economy owing to the usual “lag” in how higher rates slow growth.
The Fed’s seemingly softer language gave a boost to stocks. The Dow Jones Industrial Average
and S&P 500
both shot up after the decision was announced. By a unanimous vote, the Fed hiked its rate by 0.75 percentage points to a range of 3.75% to 4%. In new language, the Fed said it expects to continue with further rate hikes “until they are sufficiently restrictive” to return inflation to 2% “over time.” The Fed also said it 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.” Many investors and economists viewed the language as a step back from the Fed’s aggressive strategy this year. “Those two remarks taken together will give officials a platform to stop hiking rates while inflation is still high,” said economist Katherine Judge of CIBC Economics. Chairman Jerome Powell acknowledged in a press conference that at some point “it will be appropriate to slow the pace of increases.” But he also said interest rates are likely to end up “higher than previously expected.” The Fed last forecast estimated its benchmark rate would top out around 4.6%. Some say the Fed hasn’t really altered its approach. “There’s little surprise or change from what the Fed has been saying all along,” said senior economist Will Compernolle of FHN Financial. “They’ll take into account how hi …