Fed opens policy meeting as it seeks to tame inflation

WASHINGTON, July 26 — The US central bank opened its two-day policy meeting today, preparing for another salvo in the war on rising inflation.

The Federal Reserve is expected to announce another big interest rate increase tomorrow, the fourth this year, in the effort to tamp down price pressures that have been squeezing American families.

The challenge for policymakers is to quell inflation before it becomes dangerously entrenched, but without sending the world’s largest economy into a recession that would reverberate around the globe.

But Fed Chair Jerome Powell and others have made it clear they are willing to risk a downturn in order to stamp out inflation, after annual consumer prices soared 9.1 per cent in June, and central bankers will keep raising rates until they see clear evidence the rate is moving back towards the two per cent goal.

The policy-setting Federal Open Market Committee is expected to hike the benchmark borrowing rate on Wednesday by another three-quarters of a percentage point in the next step in its aggressive campaign to cool demand and ease the price pressures squeezing American households and businesses.

“The FOMC meeting began at 10:30 am ET as scheduled,” a Fed spokesperson said in a statement.

While prices have continued to rise, with home prices hitting a new record, there are signs the pace of the increases have begun to slow, which may allow the central bank to ease up on its rate increases.

From zero at the start of the year, the Fed has raised the policy lending rate to a range of 1.5 to 1.75 per cent, which has pushed mortgage rates higher and slowed housing sales for five straight months.

Policymakers want to engineer a “soft landing,” taming inflation without causing a downturn, but economists warn they face an increasingly narrow path to success and it would be easy to overshoot by being too aggressive.

“Interest rates are a very blunt tool, and that’s the tool that the Fed has,” Julie Smith, Lafayette College economics professor told AFP. “I don’t envy them at this point.” — AFP