U.S. raises interest rate again but hints that hiking policy may soon pivot

The Federal Reserve raised its benchmark interest rate by three quarters of a percentage point on Wednesday.

The move was widely expected, as the U.S. central bank continues itsfight to tame high inflation.

While the move will raise the top end of itsrange to four per cent, the central bank also signaled that it may be getting closer to the end of the current cycle of rate hikes.

The bank said in a statement accompanying the decision that it will take into accountthe "cumulative tightening of monetary policy" in making its rate decisions from now on.

That's the bank's way of saying that after having raised its rate five times in barely six months, it is getting closer to leaving thepolicy rate where it iswhile it assesses the impact of its increasesso far.

David Rosenberg, an economist with Rosenberg research, said the Fed's statement clearly suggests the central bank is starting to "pivot" from rate hikes to having to cut rates again.

"The Fed had to say that it still anticipates more rate hikes in order to continue to flex its inflation-fighting muscles, but it said pretty well the same thing in the summer of 2007 and the next thing you know circumstances changed and forced them to ease," he said in a note to clients. "As the effects of the cumulativetightening percolate through the data in early 2023, the Fed will be done," he said.

The Fed did its best in its statement to make it clear that it doesn't think it's finished hiking quite yet.

"Ongoing increases in the target range will be appropriate," the central bank said.

"That means officials don't yet believe that rates are sufficiently restrictiveto do the job," economist Royce Mendes at Desjardins said of the statement. "That said, they don't give any hints about how much further rates need to rise."

Katherine Judge, an economist at CIBC, viewed the Fed's statement as leaning more toward slowing down hikes entirely.

The bank drawing attention to the lag in the impact that previous rate hikes have had "will give officials a platform to stop hiking rates while inflation is still high," she said.

Bank of Canada hiked last week

The U.S. central bank is one of many around the world scrambling to get ahead of runaway inflation.

After slashing its rate to functionally zero in the early days of the pandemic, two years later, central banks around the world are aggressivelyraising theirlending rates to cool demand for goods and services.

The Bank of Canada raised its rate last week, and it bucked expectationsby only raising the rate by 50 basis points, lower than its previous hike of 75 points. That was taken as a sign that Canada's central bank is getting close to the end of its rate-hiking cycle.

Bank governor TiffMacklemdid little to dispel that narrative in testimony to the Senate Banking Committee on Tuesday evening.

"This tightening phase will draw to a close,"Macklemsaid according to his prepared remarks. "We are getting closer, but we are not there yet."

Federal Reserve chair Jerome Powell will have more to say about the U.S. bank's line of thinking at a newsconference later on Wednesday.