Fed Ushers In Fourth Jumbo Increase in Interest Rates to Fight Inflation

Federal Reserve officials continued their assault on rapid inflation on Wednesday, raising interest rates by three-quarters of a point in their sixth increase this year and suggesting that there were more to come.

At the same time, the policymakers, led by Jerome H. Powell, the Fed chair, said in their policy statement that they were aware of the significant steps they had already taken to cool the economy. They also said that interest rate moves take time to fully work.

Officials have raised borrowing costs from near-zero in March to a range of 3.75 to 4 percent, and their three-quarter-point rate increase on Wednesday was the fourth straight move of that size.

While Mr. Powell said during a new conference that “at some point” it would be appropriate to slow the pace of increases, he also suggested that interest rates would peak at a higher level than the 4.6 percent that the Fed predicted in September.

He noted that rates would “have to go higher and stay higher for a while” — a development that could make achieving a so-called “soft landing” harder.

Here’s what else to know:

  • The Fed acknowledged that more rate increases were coming, but also signaled that it was aware that its tightening was adding up.

  • “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” the Fed statement said.

  • The Fed added: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

  • Stocks rallied after the Fed’s announcement, while government bond yields fell. But as Mr. Powell began answering questions from reporters, stocks fell sharply after he suggested that interest rates could peak at a level higher than previously projected and noted that it would be “very premature” to consider a pause in rate increases. Bond yields became more mixed, with traders seemingly unsure what to make of Mr. Powell’s comments.

  • Mr. Powell also made clear that the bigger risk to the economy was in not acting to tame inflation, noting that if the Fed over-corrects, it has the tools to walk that back. The bigger economic risk is “if we don’t get inflation under control because we don’t tighten enough.”