Fed hikes interest rate to highest since 2001

The Federal Reserve raised interest rates by 25 basis points (bps), as widely expected, to the highest level in 22 years.

The Federal Reserve lifted its key interest rate at the range of 5.25% and 5.50%, the Federal Open Market Committee (FOMC) said in its policy statement.
 
Recent indicators suggest that economic activity has been expanding at a moderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, the US central bank said.

The only other change of note in the statement was an upgrade of economic growth to “moderate” from “modest” at the June meeting despite expectations for at least a mild recession ahead. The statement again described inflation as “elevated” and job gains as “robust.”

The US banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

This hike is the 11th since early 2022 in the last 12 meetings, during which interest rates were kept unchanged only once in June.

Today’s move came after data in June showed that inflation eased to 3% on an annual basis from its peak of 9.1% in June 2022. However, it remains above the central bank’s target of 2%. 

Fed Chair Jerome Powell is set to speak later today about the future of monetary policy in the US. Policymakers will meet again in September, November and December.

Source : Argaam