<\/p>\n
Inflation has remained stubbornly high.<\/p>\n
The Federal Reserve raised interest rates on Wednesday (Sep 16) and flagged more hikes in the coming months, with new US central bank chief Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration\u2019s inability so far to control inflation that policymakers worry could worsen.<\/p>\n
While President Donald Trump had promised to lower prices on his watch, the combined impact of his global import tariffs, an energy shock following the start of the US-Israeli war with Iran, and capital spending from the artificial intelligence boom has kept price pressures intense enough that the Fed felt it needed to raise its benchmark overnight interest rate by a quarter of a percentage point to the 3.75 to 4 per cent range.<\/p>\n
Updated quarterly economic projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. All but one indicated they saw upside risks to inflation that they no longer described as largely arising from one-off supply shocks.<\/p>\n
Warsh, who again did not submit rate or other economic projections, attributed the need for tighter monetary policy in part to an economy he sees as picking up speed, with strong economic and job growth adding to price pressures that no longer seem rooted in oil costs or import tariffs alone.<\/p>\n
\u201cThere\u2019s been a pretty wide-ranging set of data, including the labor markets, that the economy has strengthened,\u201d Warsh told reporters in listing the reasons that prompted him to support a rate hike after advocating that rates should remain on hold at the Fed\u2019s Jul 28-29 meeting. \u201cDomestic spending has been resilient, productivity growth strong, and capital investment is robust.\u201d<\/p>\n
The rate increase was the first such move in three years and the first policy shift under the new Fed chief, who took office in late May after being selected by Trump with an expectation that he would cut rates.<\/p>\n
\u201cInflation remains elevated. Today\u2019s policy action will support a timelier return to the committee\u2019s 2 per cent goal,\u201d the central bank\u2019s Federal Open Market Committee said in its policy statement after the end of a two-day meeting.<\/p>\n
Warsh, speaking in his post-meeting press conference, called the rate hike the \u201cright decision.\u201d<\/p>\n
\u201cI would be hard-pressed to describe broad financial conditions as restrictive,\u201d he said. \u201cThis view was widely shared by the committee, so we removed a dose of accommodation.\u201d<\/p>\n
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