Fed nudges rates higher, forecasts further hikes

STORY: POWELL: “At today's meeting, the committee raised the target range for the federal funds rate by 25 basis points.”

The Federal Reserve on Wednesday announced its latest interest rate hike - but the smallest one since it began to aggressively raise borrowing costs to curb rampant inflation.

Wednesday's quarter-point increase comes after a half-point hike in December, and a three-quarter-point increase the month before that.

And it came with the forecast that the Fed isn't finished.

POWELL: “We will need substantially more evidence to be confident that inflation is on a sustained downward path.”

At a press conference, Fed Chair Jerome Powell noted positive signs that inflation was beginning to abate..

“We can now say I think for the first time that the disinflationary process has started, and we see it in goods prices, so far.”

…but said it was insufficient to signal an end to the rate hikes, though it would be stepping down from last year’s rapid pace of increases.

A statement released earlier Wednesday indicated that future rate increases would be in quarter-percentage-point increments.

“We will continue to make our decisions meeting by meeting, taking into account the totality of incoming data and their implications for the outlook for economic activity and inflation.”

The decision lifted the benchmark overnight interest rate to a range between 4.50% and 4.75% – a move widely anticipated by investors and flagged by U.S. central bankers ahead of this week’s two-day policy session.

Inflation, based on the Fed's preferred measure, slowed to a 5% annual rate in December.

The Fed hopes it can continue nudging inflation lower to its 2% target without triggering a deep recession or causing a substantial rise in the unemployment rate from the current 3.5%, a level rarely seen in recent decades.