Fed approves fourth straight 75-basis-point rate hike

The Federal Reserve on Wednesday raised interest rates by 75 basis points for the fourth consecutive meeting, in its ongoing crusade to rein in inflation.

In a widely expected move, the Federal Open Market Committee raised the federal funds rate to a range of 3.75% to 4% following its two-day meeting that concluded Wednesday. It marks the committee's sixth time raising rates in as many meetings after 75-basis-point increases in June, July and September, a 50-basis-point increase in May and a 25-basis-point increase in March.

While the labor market remains strong, "financial conditions have tightened significantly in response to our policy actions, and we are seeing the effects on demand in the most interest-rate-sensitive sectors of the economy, such as housing," Fed Chairman Jerome H. Powell said at a news conference Wednesday. "It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation."

Consumer prices rose 8.2% year-over-year in September, according to the latest Bureau of Labor Statistics data released Oct. 13. That's down from a 10-year high 9.1% year-over-year in June, but on a monthly basis, prices rose 0.4% in September from August, according to the BLS data.

The committee's 12 members unanimously approved the rate hike Wednesday and said in a statement that it expects "ongoing increases in the target range will be appropriate."

At its last meeting in September, the committee's median projection for the federal funds rate at the end of the year jumped to 4.4%, up from the 3.4% projection at the June meeting. Moreover, its median projection for the federal funds rate at the end of 2023 was 4.6% in September, up from a 3.8% projection in June.

Mr. Powell said the Fed restoring price stability is "essential to set the stage for achieving maximum employment and stable prices in the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done."

In determining the pace of future increases in the target range, the committee said it 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."

Anders S. Persson, fixed-income CIO at Nuveen, said part of the committee's statement was a "dovish" surprise and opens the possibility that rates will not rise as quickly as markets expect.

"This dynamic is likely to be positive for institutional investors, as it will support fixed income returns moving forward," Mr. Persson said in an email. "In our portfolios, we have recently reduced our duration short positioning to close to neutral, as we no longer expect long-end interest rates to move materially higher."

Nuveen has $1.1 trillion in assets under management.

Andrzej Skiba, head of U.S. fixed income at RBC Global Asset Management, said in an email that the 75-basis-point hike was a certainty given that recent inflation data were "pretty ugly" and core inflation "reached new heights."

"What is less clear is whether disappointing inflation data will force (the Fed) to raise interest rates another 75 basis points in December," Mr. Skiba added. "We think the FOMC is likely to leave the door open for a 50-basis-point hike in December. For now, the data does not support the case to ease the pace of rate hikes. However, Fed officials will look at incoming data to see whether the situation could change in the weeks ahead."

RBC Global Asset Management has $408 billion in AUM.

Calvin Norris, portfolio manager and U.S. rates strategist at Aegon Asset Management, said in an email that the language in the committee's statement suggests the central bank might back away from future 75-basis-point hikes, "with a 50-basis-point hike the most likely scenario now."

Aegon Asset Management has $329 billion in assets under management.

Several Senate Democrats, including Sherrod Brown of Ohio, chairman of the Senate Banking Committee; John Hickenlooper of Colorado; and Elizabeth Warren of Massachusetts, have publicly voiced concern in recent weeks with the pace of the Fed's rate hikes, saying the moves could steer the U.S. economy into a recession.

"The Fed's bluntest tool (to fight inflation) is interest rate increases, and it has wielded that hammer repeatedly," Mr. Hickenlooper said in a letter to Mr. Powell before Wednesday's announcement. "However, after five straight rate increases by the Fed, I worry any additional action will undermine economic growth and harm American families."

The committee's next meeting is Dec. 13-14 when another rate hike is expected. The committee will also release an updated forecast then.