Market Daily

Market Daily

The Federal Reserve settles on smaller rate hikes

The Federal Reserve recently said it could slow the pace of aggressive rate hikes faster than expected.

The surprising announcement came Wednesday after Fed Chairman Jerome Powell spoke at an economic forum.

The announcement

Federal Reserve Chairman Jerome Powell delivered remarks at the Hutchins Center regarding fiscal and monetary policy.

It was his last public appearance before the central bank entered a blackout period for its December 13 to 14 monetary policy meeting.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” said Powell.

“Despite some promising developments, we have a long way to go.”

The Federal Reserve chair also noted they had seen no notable improvement in decades of high inflation that has weighed on the economy.

Rate increases

Meanwhile, investors are looking for signs that the Fed is slowing or halting its aggressive rate hikes.

The Federal Reserve recently stepped up its rhetoric to spread the message that more needs to be done.

Additionally, officials will continue to raise interest rates until inflation shows signs of slowing.

This time, however, the rate hikes are smaller than before.

Stock market

St. Louis Federal Reserve President James Bullard warned this week that the stock market is underpricing the risk of an aggressive Fed.

Meanwhile, New York Federal Reserve President John Williams said inflation remained the top economic concern worldwide.

Williams called underlying service-sector inflation the most challenging part of the fight.

Read also: Federal Reserve marches on with consecutive rate hike


The Fed raised key interest rates six times this year for the following reasons:

  • Discouraging borrowing
  • Cooling the economy
  • Bringing down the high inflation that peaked at 9.1% over the summer

Meanwhile, the latest consumer price index showed a drop in inflation of 7.7%.


The labor landscape has proven to be sustainable despite aggressive measures.

Additionally, the economy regained jobs lost after millions were out of work at the start of the pandemic.

In the past few months, hundreds of thousands of jobs were added to the labor market.

Moreover, the market has maintained a low unemployment rate that stands at a rate of nearly half a century.

While it may be good news for workers, the labor market puts the Fed in a difficult position.

A staff shortage means that workers can charge their own wages, increasing inflationary pressures.

A recent job vacancy and turnover survey showed Wednesday that there were nearly 1.7 jobs available to job seekers in October.

According to Powell, the decrease in the number of vacancies is a positive sign.

He noted, however, that while the job opportunity-unemployment ratio is tense, he and other Fed officials believe the job market could return to equilibrium if job vacancies decline.

“We’ve seen that so far, but it’s way too early,” said Powell.


The Federal Reserve is tackling a supply-side inflation problem squarely.

Demand for goods in the United States soared last summer as consumers weathered days of shutdowns and layoffs.

However, the global supply chain is taking longer to recover, leading to bottlenecks, shortages of goods, and price hikes.

The Federal Reserve balked at calls to deal with runaway inflation, calling it “transitory.”

Moreover, the Fed kept interest rates at historically low levels because it did not want to risk a resumption of economic growth.

As demand increases, inflation has become the central bank’s primary concern.

In March, the Federal Reserve initiated a swift corrective course with the following actions:

  • Hiking its benchmark lending rate by a quarter of a point
  • Hiking lending rate by half a point
  • Rolling out four consecutive massive three-quarter-point hikes

However, the measures have not yet curbed inflation in the United States.

Instead, rate hikes could potentially do more harm than good.

Read also: The Federal Reserve’s efforts continue to be overshadowed by inflation

New approach

The Federal Reserve is currently implementing a new model of sustained and smaller rate hikes over a longer period of time.

They believe the approach will result in a soft landing, keeping inflation in check and avoiding a recession or significant layoffs.

“I do continue to believe that there’s a path to a soft or softish landing,” said Jerome Powell.

“I think it’s still achievable.”

“It is likely that restoring price stability will require holding policy at a restrictive level for some time.”

“History cautions strongly against prematurely loosening policy,” he added.

“We will stay the course until the job is done.”


Small rate hikes are likely coming in December, says Fed Chair Powell