<div style="text-align: justify; "><span style="font-size: 1rem;">Slowing inflation and a cooling property sector are fueling expectations that the US central bank can adopt a smaller interest rate hike this week, as policymakers assess current efforts to rein in prices.</span><br></div><div style="text-align: justify;"><br></div><div style="text-align: justify;">As consumer inflation rocketed to decades-high levels last year, the Federal Reserve raised rates seven times in an aggressive campaign to cool the world's biggest economy and lower costs.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">Since then, the interest-sensitive property sector has slumped, retail sales have weakened and wage growth has started to ease, prompting some Fed policymakers to suggest it may be time to slow the pace of rate hikes further.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">"A slower pace of rate hikes will give the committee time to assess the full economic effects of monetary tightening thus far," said Moody's Investors Service in a report.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">Markets expect the Fed to adopt a 25-basis-point hike at the end of a two-day meeting Wednesday, slowing the pace of increases for a second time in a row.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">This would take the benchmark lending rate to 4.50-4.75 percent, a level last seen in 2007. In December, the Fed announced a 50-basis-point hike, stepping down from four earlier, steeper spikes.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">"They are seeing the desired effects of policy," Rubeela Farooqi of High Frequency Economics told AFP.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">"They don't want to keep on pushing until they get the economy into a recession," she said.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">- 'Far from won' -</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">But the inflation fight "is far from won," warned the Moody's report.</div><div style="text-align: justify;">Although demand appears to be moderating and supply bottlenecks have eased, spending has been stronger than expected.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">This has prevented inflation from falling more rapidly and suggests the Fed's "terminal rate" -- the level at which it will halt its increases -- remains uncertain.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">For inflation to come down to the Fed's target, "we will need a little bit of softening in the labor market," Madhavi Bokil of Moody's Investors Service told AFP. This could show up in a slower pace of hiring and fewer vacancies.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">Wages do not appear to be driving inflation up, but they do lend some support to consumer spending as households draw down on pandemic-era savings.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">Salary gains remained high last year, while employers were reluctant to shed workers they may have struggled to find since the pandemic, keeping the labor market tight.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">- 'Soft landing' -</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">On the other hand, the fact that the labor market has not slumped in response to tightening monetary policy brings optimism for a "soft landing" of the economy, where inflation comes down without triggering significant job losses or a major downturn.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">"No one ever said that arranging a soft landing is easy, but our base case remains that if the Fed stops raising rates soon, the risk of a severe recession is quite small," said Ian Shepherdson of Pantheon Macroeconomics.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">If the Fed raises rates too far, a "bigger danger" would be an unnecessary recession, he said.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">"However much the Fed might want to be sure the inflation demon is put back in its box," dragging inflation below policymakers' two percent target and an "accompanying rise in unemployment would represent a policy failure," said Shepherdson. AFP</div><div style="text-align: justify;"><br></div><div style="text-align: justify; ">bnbd24/kh</div>