Fed Unleashes a 4th Hefty Rate Hike

This story has been updated with Powell's remarks. The Fed's November move was expected and came to pass: The Fed hiked interest rates by three-quarters of a percentage point Wednesday for the fourth time in a row, putting the central bank's benchmark rate between 3.75% and 4%. That's the highest it has been in 15 years. But as Michael Gapen, chief US economist at Bank of America, put it, "The November meeting isn’t really about November. It’s about December." Indeed, the bigger question is what will happen in December. Going into today, investors were hoping for a signal from Fed Chair Jerome Powell in a 2:30pm ET news briefing that rate increases would slow—but got a mixed bag.

The route analysts had laid out prior to Powell's comments: a half-point bump in December and two quarter-point hikes in early 2023 before stopping for good in March in the 4.75% to 5% range, per CNBC. As the Wall Street Journal reports, Powell did indicate the Fed could begin to slow rates in December: "That time is coming and it may come as soon as the next meeting or the one after that." But more question marks surrounded the "terminal rate," meaning where things land when the increases are finished. On that front, Powell said, "the incoming data since our last meeting suggests ultimate level of interest rates will be higher" than previously thought. "We still have some ways to go." Stocks dropped as he spoke.

Prior to the meeting, the AP gave context to investor expectations: Some early signs suggest that inflation could start declining in 2023. Consumer spending, squeezed by high prices and costlier loans, is barely growing. Supply chain snarls are easing, which means fewer shortages of goods and parts. Wage growth is plateauing, which, if followed by declines, would reduce inflationary pressures. Still, there are now 1.9 available jobs for each unemployed worker, an unusually large supply. A ratio that high means that employers will likely continue to raise pay to attract and keep workers. Those higher labor costs are often passed on to customers in the form of higher prices, thereby fueling more inflation. (More Federal Reserve stories.)