By Yasin Ebrahim
Investing.com -- The Federal Reserve on Wednesday raised interest rates by 75-basis points for the second straight meeting and reiterated that further hikes would be appropriate to curb "elevated" inflation, which is weighing on global economic activity.
The Federal Open Market Committee raised its benchmark rate to a range of 2.25% to 2.5% from 1.5% to 1.75% previously.
In support of its goals - to achieve maximum employment and inflation at the rate of 2% over the longer run - the Fed said it "anticipates that ongoing increases in the target range will be appropriate."
In the press conference that followed the monetary policy statement, Powell backed the idea of the central bank delivering an "unusually large" rate hike in September, though said that a slower pace of hikes could be required to allow the Fed time to assess the impact of tighter policy measures on the economy and inflation.
"As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases...while we assess how our cumulative policy adjustments are affecting the economy and inflation," Powell said.
Some, however, continue to expect that pace of inflation won't slow as much as expected, forcing the Fed to continue with rate hikes.
"I think the market’s expectation [for the Fed easing] is fantastically wrong.” Brad Conger, Deputy Chief Investment Officer at asset management firm Hirtle, Callaghan & Co. told Investing.com in an interview on Wednesday. “My expectation is the inflation data will continue to be in the mid-single digits...that’s not going to be sufficient for the Fed to pause, much less ease.”
Following the Fed's latest hike, Powell suggested that the fed funds rate had reached the neutral rate - one that neither stimulates nor slows economic growth - but would likely need to move beyond this rate -- to about 3.4% by the end of the year, paving the way for about 100 basis points between now and year-end -- to curb inflation.
In the weeks leading up to the decision, bets on a much larger rate hike had gripped investor attention following data showing inflation hit a fresh four-decade high last month.
But Fed members quickly downplayed the need for a much larger hike, saying that a 0.75-point increase would be appropriate to keep the central bank on its path to move to a restrictive stance to bring down elevated inflation pressures.
The Fed’s policy measures – aimed at curbing demand to stifle inflation – appear to be having the desired impact as the latest data and quarterly reports from consumer sensitive sectors including retailers have flagged concerns about slowing economic growth.
But many worry that in its fight against inflation, the Fed may slow the economy by too much, avoid the so-called soft landing and tip the economy into recession.
Fed members, while acknowledging signs of a slowing economy as "recent indicators of spending and production have softened," continued to point to the"robust" job gains in recent months as a sign of economic strength. "[J]ob gains have been robust in recent months, and the unemployment rate has remained low," the Fed said in a statement.
Others argue, however, that should high inflation persist, then it will only be a matter of time before the economy enters recession.
“There will almost certainly be a recession if inflation continues to stay high in the next 12 months," Will Rhind, founder and CEO, GraniteShares told Investing.com in an interview on Tuesday. “Consumers are getting squeezed because the cost of goods and services is rising and the cost to borrow money is going up.”