Fed raises interest rates to highest level in 20 years.
The Federal Reserve Raises Interest Rates to Highest Level in 22 Years
The Federal Reserve made a bold move on Wednesday by hiking interest rates to the highest level seen in 22 years. This decision comes despite easing inflationary pressures.
Rate Increase and Future Policy
After careful deliberation over two days, the Federal Reserve raised the federal funds rate from 5% to a target range of 5.25% to 5.5%. In a statement, the Fed explained that further rate increases will depend on economic and inflationary indicators. The goal is to achieve a 2% inflation rate while maintaining economic growth.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy,” the statement continued.
The decision to hike rates received unanimous support from the Federal Reserve Board. This move aligns with the 11 previous rate hikes since March of 2022, with only a short pause in June, as reported by CNBC. Fed Chair Jerome Powell had previously expressed concerns about inflation remaining too high, indicating that more “restriction” on monetary policy would likely be necessary.
Inflation Trends and Future Rate Hikes
Inflation has shown signs of cooling off in recent months. According to CNBC, the consumer price index settled at 3% on a yearly basis in June, down from 9.1% in June 2022. Despite this, the Federal Reserve has maintained an aggressive consecutive hike in interest rates, reminiscent of the 1980s when inflation rates were even higher.
The Fed remains committed to bringing inflation down to the target of 2%. The Federal Open Market Committee (FOMC) has hinted at further rate hikes in September and November to continue combating inflation.
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Greg McBride, senior vice president and chief financial analyst for Bankrate, agrees with the Fed’s sentiment. In an interview with NBC, he stated, “Inflation remains stubbornly high.”
He further explained, ”The economy has been remarkably resilient, the labor market is still robust, but that may be contributing to the stubbornly high inflation. So, the Fed has to pump the brakes a bit more.”
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