Increase will be smaller: Fed wants to put the brakes on the pace of interest rates

What are the risks of tightening interest rates too quickly? This question is being discussed by the management of the US Federal Reserve.

Increase will be smaller: Fed wants to put the brakes on the pace of interest rates

What are the risks of tightening interest rates too quickly? This question is being discussed by the management of the US Federal Reserve. Most agree that after four rate hikes of 0.75 percentage points, a slower pace should be adopted.

In the US Federal Reserve, there are increasing signals that it is switching to a less aggressive stance on interest rate hikes. A "clear majority" of policymakers say it is likely to be time to ease the pace of hikes soon, according to minutes from the latest rate meeting earlier this month. This should make it easier for the central bank to assess its progress on the way to full employment and price stability.

This approach is intended to take account of the fact that it is uncertain how long it will take for the interest rate hikes to take effect and how much of an impact they will have on the economy and inflation. In early November, the Fed raised interest rates by 0.75 percentage points for the fourth time in a row. It is currently in a range between 3.75 and 4.00 percent. Meanwhile, several US central bankers have signaled that they might favor smaller steps.

On the futures markets, the chance of a smaller rate hike of 0.50 percentage points was now estimated at 79 percent at the mid-December meeting. As the minutes further show, a debate has also started among Fed executives about the risks of raising interest rates too quickly.

Some policymakers thought slower hikes could reduce risks to the financial system. Still others stressed that there needed to be more concrete signs of a significant slowdown in inflation before the pace of hikes could be eased. In the meantime, however, there are increasing signs that the high inflationary pressure is falling more than expected - both in terms of consumer and producer prices.

According to the US currency guard Mary Daly, who heads the San Francisco Fed district, the US central bank wants to slow down the economy as "gently and efficiently as possible" with its interest rate. However, according to her Fed colleague Esther George from Kansas City, it is becoming increasingly difficult to contain inflation without triggering a recession.