• July 26, 2023

Fed raises interest rates, leaves door open to another hike – Times of India

Fed raises interest rates, leaves door open to another hike – Times of India
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WASHINGTON: The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, citing still elevated inflation as a rationale for what is now the highest US central bank policy rate in 16 years.

The rate hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range, and the accompanying policy statement left the door open to another increase.
“The (Federal Open Market) Committee will continue to assess additional information and its implications for monetary policy,” the Fed said in language that was little changed from its June statement and left the central bank’s policy options open as it searches for a stopping point to the current tightening cycle.

As it stated in June, the Fed said it would watch incoming data and study the impact of its rate hikes on the economy “in determining the extent of additional policy firming that may be appropriate” to reach its 2% inflation target.
Though inflation data since the Fed’s meeting in June has been weaker than expected, policymakers have been reluctant to alter their hawkish stance until there is more progress in reducing price pressures.
Key measures of inflation remain more than double the Fed’s target, and the economy by many measures, including a low 3.6% unemployment rate, continues to outperform expectations given the rapid increase in interest rates.
Job gains remain “robust,” the Fed said, while it described the economy as growing at a “moderate” pace, a slight upgrade from the “modest” pace seen as of the June meeting. The US government on Thursday is expected to report the economy grew at a 1.8% annual pace in the second quarter, according to economists polled by Reuters.
However, with about eight weeks until the next Fed meeting, a longer-than-usual interlude, continued moderation in the pace of price increases could make this the last rate hike in a process that began with a cautious quarter-percentage-point increase in March of 2022 before accelerating into the most rapid monetary tightening since the 1980s.
Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the decision and policy statement, and perhaps provide more details on what may push the central bank toward another rate increase or away from one.
In the most recent economic projections from Fed policymakers, 12 of 18 officials expected at least one more quarter-percentage-point increase would be needed by the end of this year.




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