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Fed Raises Interest Rates a Quarter Point as Expected

July 27th, 2023 by tisner

Observers looked for clues on whether the Fed will raise interest rates again later this year, and the Fed seemed to imply it was likely, but not a sure thing.

WASHINGTON – The U.S. Federal Reserve on Wednesday raised its benchmark interest rate by another 0.25 percentage point following a pause in June, recognizing the need to do more to contain inflation.

The increase, announced after a two-day policy meeting, brings the federal funds rate, which banks charge each other for overnight borrowing, to a new target range of between 5.25% and 5.5% — a 22-year high.

This is the 11th hike since March 2022, when the U.S. central bank raised the key rate from near zero. At the June meeting, the bank’s policymaking Federal Open Market Committee left the rate unchanged following 10 consecutive increases, saying it wanted time to assess the effects of its past decisions and labor market figures.

At the time, Fed Chair Jerome Powell also said the pause was needed to examine any fallout from the banking turmoil that shook the U.S. financial system earlier this year, while noting that most of the central bank’s policymakers viewed additional rate hikes as necessary later this year to cool down the economy.

Inflation in the United States has declined considerably since it peaked last summer at 9.1%, a level unseen since more than four decades earlier.

Although inflation also broadly slowed in June, with the consumer price index rising 3% from a year earlier to register the smallest increase since March 2021, it is still far above the Fed’s 2% target.

Moreover, economic data have shown that the U.S. labor market remains robust. Citing income gains, the International Monetary Fund earlier this week revised upward its 2023 growth forecast for the United States to 1.8%, compared with the 1.6% projected in April.

Economists and investors are keen to find any clues as to whether the latest hike will be the Fed’s final move this year in its inflation fight. The Fed has ruled out the possibility of cutting the key rate anytime soon, but it has become increasingly careful not to set the stage for the world’s largest economy to tip into a recession by raising the cost to borrow too much.

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