Fed raises interest rates to highest level in 22 years.

The Federal Reserve ​Raises Interest Rates

The⁣ Federal Reserve made a significant move on Wednesday, raising interest rates by a quarter of a percentage point. Fed Chair Jerome⁤ Powell emphasized the need⁢ for ⁤the economy to slow down and the labor market​ to weaken in order for inflation to return to the central bank’s target of 2 percent.

This latest hike marks the 11th increase in the last 12 meetings,‍ setting ‍the benchmark overnight interest rate in the⁢ range ‌of ‌5.25 percent to ⁤5.50 percent. This level has not been consistently exceeded for about 22 years, dating back to just before the 2007 housing market crash.

“The (Federal Open Market) Committee will continue to assess additional information and its implications ⁢for monetary policy,” the Fed stated, leaving its policy options open‍ as it searches for a stopping point in the⁢ current‌ tightening cycle.

Powell‍ did not make any promises regarding future rate ‌increases,‌ but the September meeting is considered “live” for another hike. However, if inflation continues to slow and economic data weakens, policymakers may choose to pause.

Challenges in the Inflation Fight

In a press conference following the policy move, Powell emphasized the importance of analyzing incoming data to determine if the economy is heading for‍ a period of “below-trend” growth. This type of growth is⁣ necessary for inflation to decrease.

While inflation has been easing, key price measures are still increasing at more than double the Fed’s target. However, the labor market​ remains strong, with the unemployment rate at ⁢a low 3.6 percent. Economic growth has also remained above the Fed’s estimated trend rate.

Powell acknowledged the positive ⁤development of inflation falling without significant damage ‍to the economy. However, he stated that achieving the inflation target will likely require some ⁣economic losses.

“Reducing inflation is likely to require a period of below-trend growth and some softening ​of labor market conditions,” Powell⁤ explained.

The Fed ‌will continue to monitor incoming​ data and assess the impact of rate ‍hikes on the economy to determine the extent of additional policy firming needed to reach its inflation target.

While inflation data has been weaker than expected since the June meeting, policymakers have ​been hesitant to alter their hawkish approach until there is more progress in reducing price pressures. ‌Most policymakers anticipate ⁢at least one more rate ‍increase by the end ⁣of the year.

Powell emphasized that decisions will be made on a ‍meeting-by-meeting basis,⁢ and officials can only provide limited guidance about ​future monetary policy.

He ​cautioned against expecting ⁣any near-term easing in rates, stating that‍ cutting rates won’t happen this year.

“Moderate” Growth and Future Outlook

The Fed’s statement acknowledged the economy’s continued outperformance, with robust job gains and moderate growth. Powell expressed hope​ for a “soft landing” scenario, where inflation falls, unemployment remains low, and a recession⁢ is avoided.

However, his comments about the need for slower growth suggest a possible bias towards higher rates to put more‌ pressure on demand. Some analysts believe that a ‌recession or deeper slowing may be necessary to bring inflation back to the target.

Overall, the Federal Reserve’s decision to raise ⁢interest rates reflects its ongoing⁤ efforts to manage inflation and maintain a strong economy.

(Reporting by ⁤Howard​ Schneider and Michael S. Derby; Additional reporting‌ by Safiyah Riddle; Editing by Paul Simao)