US interest rates go up – but only by half a point 

The chairman of the US Federal Reserve indicated last night that the battle against inflation was not yet over, even though she decided to slow the pace of interest rate hikes.

Jerome Powell said there was “more work to be done” as it raised rates – as expected – by half a percentage point.

Markets wavered – with Wall Street stocks initially falling and dollar rising, before largely reversing their moves when Powell addressed a post-announcement press conference.

The initial estimate was hawkish, as the US Federal Reserve predicted that the spike in the Federal Reserve’s key interest rate next year would be higher than previously expected.

With inflation still well above the 2 percent target, Powell reiterated, “We’ll stay on track until the job is done.”

He also said that once rates peak they will have to remain ‘restrictive’ for some time and that ‘premature’ rate cuts should be guarded against.

Still, Powell offered ostensible hope that the rate of increases would slow to 0.25 percent when the Federal Reserve makes its next interest rate decision in February next year.

“Because we went so fast, we think it’s the right thing to go to a slower pace now,” said Powell. Further rate hikes are likely to add to the pain for the US economy as the Fed has forecast GDP growth to slow to a crawl next year.

The US central bank has also sharply raised its outlook for unemployment.

Powell defended the Fed’s position, saying that “the worst pain would come if rates were not raised enough.”

But he acknowledged that jobs would be cut.

“I wish there was a completely painless way to restore price stability: there isn’t, this is the best we can do,” he said. On Tuesday this week, the chairman welcomed official figures showing that US inflation fell to 7.1 percent in November.

This was down from 7.7 percent in October and a four-decade high of 9.1 percent during the summer.

But he added: “Substantially more evidence will be needed to inspire confidence that inflation is on a sustained downward path.”

The Fed has responded to high inflation with the most aggressive round of rate hikes since the 1980s.

Prior to last night, there were four 0.75 percentage point increases in a row. With signs of declining inflation, markets eagerly awaited a so-called ‘pivot’ from the Fed to lower interest rate hikes.

That was confirmed with last night’s widely expected half-point rise.

But Wall Street is now focused on what happens next.

The latest increase brings the federal funds rate to a target range of 4.25 percent to 4.5 percent, the highest level since 2007.

Britain is also facing a battle against rampant inflation.

However, figures released yesterday showed inflation fell to 10.7 percent in November, from a 41-year high of 11.1 percent in October – a figure that offered hope that it had peaked.

The Bank of England is widely expected to continue its own rate hike path with a half point hike today. This would also reflect the slowdown that the Fed has implemented, after raising by three-quarters of a point last time.

But there is a lack of consensus between the Bank’s so-called ‘hawks’, who favor bigger hikes to protect inflation, and ‘doves’, who hesitate because of the impact on GDP and employment.

That has led to speculation today about a possible four-way split in the interest rate setting committee for monetary policy.

The European Central Bank is also widely expected to slow the pace of rate hikes today with a half-point increase, although the Eurozone is also still suffering from double-digit inflation.

While price increases are still well above target, policymakers are slamming the brakes as the impact of their aggressive actions will only become apparent so far this year.

There are fears that by putting too much pressure on borrowers, they could go beyond what is necessary to dampen price pressures and deepen the coming recession.