Washington (AFP) - The Federal Reserve opened its final day of deliberations Wednesday, which is expected to bring another steep interest rate hike as it tries to cool the economy amid intense political pressure ahead of next week's midterm elections.
The US central bank has embarked on an aggressive campaign this year to rein in inflation which has surged to its fastest pace in decades, and with prices still rising, the squeeze on American households has propelled economic issues to the top of voter priorities.
Raising borrowing costs as it aims to dampen demand, the Fed has cranked up the benchmark lending rate five times this year, including three straight increases of 0.75 percentage point.
Policymakers are widely expected to announce a fourth three-quarter point rate hike on Wednesday, so all eyes will be focused on any signs the Fed could shift to a less hawkish stance in the coming months, slowing or halting the policy moves.
"There's a growing belief that the central bank will signal a desire to ease off the brake over the following few meetings," said Oanda analyst Craig Erlam.
But it will be challenging for Fed Chair Jerome Powell to signal the policy-setting Federal Open Market Committee (FOMC) is mulling a step-down from its current path, while reaffirming the commitment to bring cool inflation pressures.
"Markets will likely interpret any comments about a downshift in tightening as dovish, signaling the end of the rate hiking cycle," economist Rubeela Farooqi of High Frequency Economics said in an analysis.
If inflation remains elevated, the Fed could press on with "a series of half-point hikes, rather than further slowing the pace of increases," she added.
The impact of the Fed's actions is trickling through the economy, with the interest-sensitive housing sector cooling sharply but the labor market still tight as private hiring picked up more than expected in October.
The committee is scheduled to announce its decision at 1800 GMT.
Powell's comments at his press conference following the meeting will be scrutinized for clues on how much further he thinks the Fed must go before declaring victory in the inflation fight.
Stocks slipped on Wednesday morning as investors braced for the announcement.
Political pressure
As central bankers walk a tightrope fighting inflation while avoiding tipping the economy into a recession, politicians are ramping up pressure on Fed officials amid growing worries of a downturn.
Senator Sherrod Brown, the Democratic chair of the Senate Banking Committee, urged the Fed last month to show commitment to its dual mandate -- of promoting maximum employment and stable prices -- and moderate interest rates.
"For working Americans who already feel the crush of inflation, job losses will make it much worse," Brown said in a letter to Powell.
Other Democratic senators including Elizabeth Warren also expressed concern this week over the Fed's rate hikes, as President Joe Biden's party faces growing voter frustration over high inflation, and risks losing control of both houses of Congress to opposition Republicans.
Powell has argued that allowing high inflation to become entrenched would inflict even more pain on American families and workers.
Oanda's Erlam said it may be too late to avoid a recession "but the Fed has been very clear from the start that while a soft landing is the desirable and attainable outcome, getting inflation under control is the primary focus."
As higher borrowing rates put the brakes on the economy's momentum, there is likely to be "moderation in the labor market before a mild recession in (the first half of) 2023 brings about more marked change," said economist Matthew Martin of Oxford Economics in an analysis.
