Federal Reserve hikes key interest rate again to 4.75% — and signals more to come

The US central bank raised its target interest rate by a quarter of a percentage point on Wednesday, and pledged a “continuing increase” in borrowing costs as part of its ongoing fight against inflation.

“Inflation has eased slightly but remains elevated,” the Federal Reserve said in a statement that marked an explicit acknowledgment of progress being made to lower the pace of price increases from last year’s 40-year high.

Russia’s war in Ukraine, for example, is still seen as adding to “high levels of global uncertainty,” the Fed said. But policymakers dropped language from earlier statements that cited the war as well as the COVID-19 pandemic as direct contributors to the price hike.

Still, the Fed said the U.S. economy is enjoying “modest growth” and “steady” job gains, with policymakers still “very dead set on inflation risks.”

“The (Federal Open Market) Committee expects that a sustained increase in the target range will be consistent with achieving monetary policy that is sufficiently restrictive to bring inflation up to two percent over time,” the Fed said.

But in keeping with its promise of future rate hikes, the Fed again defied investor expectations that it was ready to signal the end of the current tightening cycle in a nod to inflation continuing to fall for six months.

It is also a departure from the prospect of the Bank of Canada told last week, when the central bank of Canada raised rates to 4.5 per cent but signaled that it could be content to keep rates there.