The Fed plans to keep hiking, but Australia is set to pause as it warns of recession risks

As Federal Reserve Chair Jerome Powell hints at bigger and possibly faster rate hikes ahead, Australia’s central bank could be headed toward a different path.

Reserve Bank of Australia’s governor Philip Lowe said in a speech Wednesday that the central bank is nearing a point where it’s ready to hit the brakes on rate hikes.

“With monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy,” he said.

While emphasizing the central bank’s target to bring down the rise of living costs, he said the central bank grapples with two risks when making monetary policy decisions: “One is the risk of not doing enough, which would result in high inflation persisting and then later proving very costly to get down,” he said.

“The other is the risk that we move too fast, or too far, and that the economy slows by more than is necessary to bring inflation down in a timely way,” he said.

Lowe’s comments come after the central bank hiked its benchmark overnight cash rate by another 25 basis points to 3.6%, marking the highest that it’s been since June 2012.

Australia’s stocks slightly rose after the smaller hike and less hawkish commentary from the RBA, with the benchmark index S&P/ASX 200

closing 0.5% higher on Tuesday.

‘Plurals are gone’

Comparing the wording from the central bank’s previous meeting, Commonwealth Bank of Australia economist Gareth Aird said a pause could come as early as April.

“The plurals are gone,” Aird said, pointing to the changes from February’s description of “further increases in interest rates” to March’s description of “further tightening.”

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