The Federal Open Market Committee raised its funds rate by a quarter percentage point to a target range of 5.25 percent -5.5 percent. This would be the highest level for the benchmark rate in the last 22 years.
The US Federal Reserve (central bank) has on the 26th July 2023 raised its benchmark funds rate by a quarter percentage point, taking the target range to 5.25 - 5.5 percent. This means borrowing costs will see its highest rates in more than 22 years.
The Federal Reserve's recent interest rate hike has left markets speculating whether it might be the last one for a while. As the central bank aims to assess the impact of previous rate increases on the economy, Chairman Jerome Powell emphasized that inflation still has some ways to go before reaching the Fed's 2% target. However, he did leave the possibility open for another rate hike in September, depending on incoming data.
Powell stated during a news conference that the Federal Open Market Committee (FOMC) will carefully evaluate the data and its implications for both economic activity and inflation. This approach aligns with the data-dependent stance adopted by most central bank officials.
This is the 11th rate increase since the tightening process began in March 2022, with the June meeting skipped to evaluate the impact of previous hikes.
Chairman Powell remains concerned about inflation, expressing his expectations for further monetary policy restrictions, which imply more rate increases.
The fed funds rate affects various forms of consumer debt, including mortgages, credit cards, and personal loans.
Despite the rate hikes, economic growth has proven to be resilient. Second-quarter GDP growth is estimated to be at a 2.4 percent annualized rate, according to the Atlanta Fed. While many economists anticipated a recession within the next 12 months, GDP growth has remained steady, with a 2 percent increase in the first quarter.
As the Federal Reserve navigates the path between controlling inflation and supporting economic growth, it keeps a watchful eye on incoming data to make informed decisions about future rate moves. The cautious approach seems prudent given the uncertain economic landscape.
On the European front, the European Central Bank (ECB), also raised interest rates by a quarter point, which has raised the the deposit facility rate to 3.75 percent.
