THE Federal Reserve raised its target interest rate by a quarter of a percentage point on 1 February 2023, yet continued to promise “ongoing increases” in borrowing costs as part of its still unresolved battle against inflation.
“Inflation has eased somewhat but remains elevated,” the US central bank said in a statement that marked an explicit acknowledgment of the progress made in lowering the pace of price increases from the 40-year highs hit last year.
The statement did indicate that any future rate increases would be in quarter-percentage-point increments, with no reference to the “pace” of future increases and instead referring to the “extent” of rate changes. But those, it said, would take into account how the policy moves so far had impacted the economy, language that linked further rate increases to the evolution of upcoming economic data.
The Fed hopes it can continue nudging inflation lower to its 2 per cent target without triggering a deep recession or causing a substantial rise in the unemployment rate from the current 3.5 per cent, a level rarely seen in recent decades.
Although the Fed delivered its smallest rate hike since last year and acknowledged that US inflation is cooling, it does not mean the price pressures seen in Singapore are now in the past and that interest rates here, especially those that affect home loans, will start to ease any time soon.
Analysts said short-term rates, such as the three-month Singapore Overnight Rate Average (Sora) and the Singapore Interbank Offer Rate (Sibor) – used as benchmarks for pricing floating-rate housing loan packages, will likely climb higher, tracking the 0.25 percentage point increase by the Fed.