Has the US Federal Reserve entered a new major tightening cycle?

The Federal Reserve has hinted at entering a new major rate-hiking phase, according to updated projections from the Federal Open Market Committee. While the central bank recently raised interest rates for the first time in three years, policymakers remain divided on the extent of future increases. Fed officials are not ruling out additional rate hikes this year, with a majority of members indicating another increase is likely in December.

However, some economists argue this move is more about risk management than a new round of tightening. The Fed's most recent major rate hike cycle occurred in 2022, when it raised rates from near zero to a range of 5.25-5.5 percent to combat high inflation. At that time, inflation peaked at over nine percent. The current inflation rate remains above the Fed's 2 percent target, and rising energy prices are causing new price pressures.

Fed Chair Kevin Warsh has declined to provide his own rate forecast, known as the dot plot, citing a preference for a non-communicative approach. Critics contend the dot plot has a poor track record and can mislead markets.