The head of the US central bank has said authorities may start to ease up on interest rate hikes as soon as this month, after racing to raise borrowing costs earlier this year.

The Federal Reserve has made four hefty 0.75 percentage point rises since June in a bid to curb inflation, which is the rate at which consumer prices rise. Fed chairman Jerome Powell said “it makes sense” to slow down to assess the impact of the moves.

Markets soared following the comments.

In the US, the Dow Jones Industrial Average jumped more than 2%, while the S&P 500 surged 3% and the Nasdaq jumped 4.41%. The dollar fell, while other global exchanges also jumped.

The US has led a global shift as central banks raise interest rates sharply after years of low borrowing costs in an attempt to slow rising prices.

The Federal Reserve’s key interest rate has risen from near zero in March to more than 3.8%, the highest since January 2008.

Authorities raise interest rates to make borrowing money more expensive, with the goal of cooling demand for big-ticket items like cars and homes and easing inflation, which is currently near its highest in 40 years.

Higher borrowing costs have already impacted sectors such as housing in the United States, where home sales have slowed significantly.

However, it typically takes months for the effects of the changes to be felt. Analysts have warned that the Fed risks causing a severe economic slowdown, displacing millions of people.

Because when economies contract, businesses make less money, which means they may have to reduce their workforces.

“The full effects of our rapid tightening so far are yet to be felt,” Mr Powell said in his speech on Wednesday.

“Thus, it makes sense to moderate the pace of our rate increases…The time for moderating the pace of rate increases may come as soon as the December meeting.”

Powell’s remarks come amid signs that inflation in the United States may be slowing. Inflation has declined since peaking at 9.1% in June, falling to 7.7% in October. However, Powell stated that the job market, including wage growth, is still too strong for the bank’s liking.

“Despite some promising developments, we have a long way to go in restoring price stability,” he said, warning that the Fed still plans to raise rates, albeit at a slower pace.

(Adapted from RTE.ie)

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