US Federal Reserve says rate hike is not meant to induce recession

After intensifying interest rate hikes, Federal Reserve Chairman, Jerome Powell indicated on Wednesday that the central bank hopes to prevent a recession.

The Fed’s interest rate hike on Wednesday was the most in a single meeting since 1994. The target range for short-term borrowing costs is currently 1.50% to 1.75%.

Powell said the Fed’s goal is to depress the rapid pace of inflation closer to its 2% target, all while preserving a “strong” labour market.

“We’re not trying to induce a recession now, let’s be clear about that,” Powell told reporters after the policy-setting Federal Open Market Committee raised short-term rates by 0.75%.

What you should know

• The Fed’s unusual move on Wednesday sparked concerns that the central bank is now more likely to hike rates at a pace that would push the economy into recession. And this action has sparked speculation about whether a 0.75% rate hike paves the way for much bigger movements in the months ahead.
• However, Powell stated that the Fed has no plans to accelerate the pace of rate hikes in the near future, at least not at its next policy-setting meeting on July 26-27.
• “The next meeting could well be about a decision between 50 and 75 [basis points],” Powell said Wednesday, essentially downplaying any speculation over a 100 basis point move.
• However, Powell reminded markets that the central bank retains flexibility on its rate moves — which he said justified the Fed’s sudden decision to abandon plans for a 0.50% move this week. He added, “Our policy is adaptive and it will continue to do so,”
• Projections from the Fed published Wednesday showed the median official expects interest rates will rise to 3.4% by year-end, well above the 2.5% level that many Fed officials have described as “restrictive” for economic activity.