Fed may resort to few more hikes before interest rate hold

The US central bank Federal Reserve delivered a 25bps or 0.25% expected interest rate hike on February 1, but the debate has now turned to when Fed will stop rate hikes.
Many economists say the global financial system is closer to see the end of the tightening cycle, but there will likely be an extended pause in policy before rates are cut next year.
Fed Chair Jerome Powell, however noted more evidence of ebbing inflation was needed before the tightening cycle could see an end.
The rate hikes imposed by the Fed since March last year have now totalled 4.5 percentage points, with the policy rate now in a range between 4.50% and 4.75%, the highest since 2007.
That is reflected in an array of consumer borrowing costs from home mortgages to car loans around the world.
In announcing its latest policy decision, the US central bank scaled back to a quarter-percentage-point rate increase after a year of larger hikes and swept aside in its statement the long list of reasons, from war to the pandemic, that were driving prices higher to say simply that “inflation has eased.”
Yet, policymakers also projected “ongoing increases” in borrowing costs would be needed, a still open-ended commitment that did not yet pinpoint when the rate hikes might stop, and pushed back against an expectation in financial markets that the Fed would pause soon and, indeed, cut rates later this year.
Powell said policymakers foresee a “couple” more rate increases from the new target range of 4.5% to 4.75%, already up from near zero levels last March.
But he also suggested officials are open to adjusting their plans if price pressures cool as fast as investors expect.
And when asked about the easing in conditions in financial markets — which could make it hard for the central bank to curb high inflation — he didn’t sound particularly alarmed.
Fed officials have been undertaking the most aggressive tightening campaign since the 1980s to quell the strongest inflation in a generation.
The 25 basis-point move they delivered on February 1 was moderation from a half-point hike in December and four jumbo-sized 75 basis point increases prior to that.
Bloomberg Economics said: “Soft inflation data in recent months haven’t been convincing enough for the Fed to consider pausing its rate-hike campaign just yet.”
By continuing to refer to “ongoing” rate hikes, the Federal Open Market Committee (FOMC) is hinting that they expect at least another two 25-basis point hikes, affirming their view of a terminal rate at 5.25.
The Fed’s favourite gauge slowed to a year-on-year rate of 5% in December from 7% in June. Bloomberg says policymakers will have at least two more months of inflation data and two more updates on the labour market before they meet again in March, and at least one more month of reports before they meet in May.
In the GCC region, the central banks of Bahrain, Saudi Arabia, and the UAE matched the 25bps interest rate hike delivered by the US Fed, but Qatar Central Bank did not follow the Fed’s move.