The Federal Reserve raised its benchmark interest rate by a quarter-point, marking the highest rate in 16 years, due to elevated inflation. The policy statement suggests the possibility of further increases as the Fed monitors economic data to reach its 2% inflation target. Fed Chair Jerome Powell may shed light on future decisions in a press conference.
The Federal Reserve, in its 11th rate hike out of the last 12 meetings, raised interest rates by a quarter of a percentage point on Wednesday. This decision resulted in the highest U.S. central bank policy rate in 16 years. The benchmark overnight interest rate is now in the 5.25%-5.50% range. The policy statement accompanying the rate hike kept the door open for another increase in the future.
The Fed’s stance remains cautious as it assesses the impact of its rate hikes on the economy and monitors incoming data. The aim is to reach its 2% inflation target. Despite weaker-than-expected inflation data since the last meeting in June, policymakers are still holding onto their hawkish stance until there is more progress in reducing price pressures. Key inflation measures are still more than double the Fed’s target, but the economy, with a low 3.6% unemployment rate, continues to perform well despite the rapid increase in interest rates.
The Fed acknowledged the economy’s “moderate” pace of growth, an upgrade from the previous description of “modest” pace seen in the June meeting.
The second-quarter economic growth is expected to be reported at 1.8% annually. Looking ahead, there is about an eight-week interval until the next Fed meeting, and if the pace of price increases continues to moderate, this could potentially be the last rate hike in the current tightening cycle, which began in March of 2022.
Fed Chair Jerome Powell will hold a press conference to provide further details on the decision and policy statement. This includes potential factors that may lead to another rate increase or a different course of action. According to the most recent projections from Fed policymakers, 12 out of 18 officials expect at least one more quarter-percentage-point increase before the end of the year.
