Fed Hikes Rates Again And Warns Of More Rises

The US central bank has hiked interest rates again, and warned more rises will be necessary to rein in the rapid pace of price increases.

Forecasts from the Federal Reserve showed the bank's key interest rate could remain above 5% a year from now.

But policymakers are starting to move more cautiously, following signs that the most severe inflation in decades may be starting to ease.

They agreed to lift the bank's key interest rate by 0.5 percentage points.

That lifted the target range for the Fed's benchmark rate to 4.25% - 4.5% - the highest rate in 15 years.

But it was a smaller increase than in recent announcements.

Federal Reserve Chairman Jerome Powell said the bank wanted to slow down to give time to see how the economy is responding to the cumulative impact of the hikes.

But he added that Wednesday's rise was "still a historically large increase and we still have some way to go."

The Federal Reserve has raised interest rates at an historically rapid pace this year, responding to inflation that is running at a 40-year high.

By raising borrowing costs, the Fed is hoping to cool the economy and ease the pressures pushing up prices. But it wants to avoid triggering a more painful slowdown than necessary.

Central banks in other countries are grappling with similar risks.

The Bank of England, which has warned the country is facing its longest recession on record, is expected to announce its own 0.5 percentage point hike on Thursday, after approving an even bigger rise last month.

Projections from the Fed show policymakers on average expect the US economy to grow by just 0.5% this year and next - well below historic norms, while the unemployment rate rises to 4.6%.

While they expect inflation to fall, most members see it remaining above 3% in 2025, which is higher than the bank's 2% target.

Federal Reserve chairman Jerome Powell said the bank was encouraged by signs that inflation was improving, but that it would take "substantially more evidence" to be confident that it was on a sustained downward path.

Wednesday's rate rise was the seventh in a row from the Fed.

The spike in borrowing costs, which sat near zero at the start of the year, has rippled out to the public in the form of higher mortgage rates, more expensive car and business loans, and credit card charges.

Some parts of the economy, such as the housing market, have already slowed sharply in response.

Rising prices are also eroding public confidence and weighing on activity.

But after hitting a peak of 9.1% in June, inflation - the rate at which prices rise - has slowly dropped, helped by a decline in energy costs.

The latest US figures showed consumer prices jumped 7.1% over the 12 months ending in November, down from 7.7% in October.