Will the Fed’s rate decision bring it closer to a ‘soft landing’ for the US economy?
The Federal Reserve is widely expected to slow its pace of interest rate increases at its meeting on Tuesday and Wednesday this week, delivering a 0.25 percentage-point increase amid mounting evidence that inflation in the US has begun to cool.
Federal Open Market Committee voters — including the hawkish Christopher Waller — have come out ahead of this week’s meeting in favour of a 0.25 percentage point increase. This raise would mark a return to a more normal tempo of policymaking after the Fed last year delivered four consecutive 0.75 percentage point increases before decelerating to 0.5 percentage points in December.
The shift in the Fed’s approach can be attributed in part to the recent chill in inflation. Consumer price growth in December slowed for the sixth straight month, with inflation clocking in at 6.5 per cent. Though inflation remains far from the Fed’s 2 per cent target, December’s level was the lowest since October 2021.