Fed Set to Slow Rate Hikes Again and Debate How Much Further to Go

Federal Reserve officials, heartened by an inflation slowdown, are poised to slow the pace of their interest-rate hikes for a second straight meeting and debate how much more they need to tighten to get prices under control.

Their campaign — which came too late, some critics argue — seems to be paying off, with a slew of data across the economy indicating that inflation is finally decelerating, a year after Chair Jerome Powell and colleagues incorrectly predicted it would soon fade. Still, a persistently tight labor market with unemployment at a five-decade low means policymakers aren’t ready to declare victory.

The mixed signals complicate discussions over when to pause following an anticipated quarter-point rate increase on Feb. 1, a more moderate tempo than the aggressive hiking under way since mid-2022.

Investors and economists continue to doubt Fed forecasts that rates will rise to above 5% from their current level just below 4.5%.

“Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” Fed Vice Chair Lael Brainard said Thursday in Chicago. She didn’t spell out her preference for interest rates at the next meeting or in coming months, but other officials have been more explicit.