The Fed, which is set to push through a smaller rate hike, may be hinting at fewer hikes

WASHINGTON – The Federal Reserve is poised to hike interest rates this week for the eighth time since March. But the Fed is likely to announce a smaller rate hike for the second consecutive month, and it may change some key words in its post-meeting statement on future rate hikes.

A change in its statement, if there is one, could be seen as a signal of an eventual pause in the Fed’s aggressive effort to raise borrowing costs. However, Chairman Jerome Powell is likely to emphasize that the Fed’s campaign to combat high inflation is far from over.

When its final meeting ends on Wednesday, the 19-member policymaking committee is expected to hike its key short-term interest rate, which affects much business and consumer credit, by a quarter-point. That would lift the rate to a range of 4.5% to 4.75%, its highest level in 15 years. The Fed’s move would follow a half-point hike in December and four three-quarter-point hikes before that.

The hefty rate hikes over the past year reflected the almost unanimous consensus among Fed officials that they must act quickly to raise borrowing costs in order to stem the worst inflationary spurt in more than 40 years. But with signs of weaker economic growth coupled with steadily lower inflation readings, reduced consumer spending and even some signs of a slowdown in the jobs market, the Fed is now navigating treacherous territory.

Less spending and hiring could help further reduce inflation. But many economists and Wall Street investors fear the Fed will hike rates too high — and leave them there for too long — causing a deep recession in the process. Based on their public statements, policymakers insist that unless they continue to fight inflation with tighter credit, price spikes could accelerate again and require even more painful suppression measures.

With uncertainty so high, several officials have said they prefer smaller rate hikes to allow time to assess the impact of their policies.

“If you encounter foggy weather or a dangerous freeway on a car trip, it’s a good idea to slow down,” Lorie Logan, president of the Federal Reserve Bank of Dallas and a former senior New York Fed official, said in a speech earlier this month. “Likewise if you are a policy maker in today’s complex economic and financial environment.”

As the Fed ramps up rate hikes, Wall Street investors are excited that rate hikes are about to stop. That optimism has pushed stock prices higher and bond yields lower year-to-date.