27-7-2023 (WASHINGTON) The Federal Reserve has raised interest rates by a quarter of a percentage point, marking the 11th increase in its last 12 meetings and taking borrowing costs in the United States to their highest level in over 22 years. The benchmark overnight interest rate is now in the range of 5.25% to 5.5%. This change was widely anticipated after recent reports showed an economy that has largely withstood higher interest rates so far. However, investors saw a second rate increase as less certain. Data on consumer prices showed inflation receded sharply in June, leading to reluctance from policymakers to alter their hawkish stance until there is more progress in reducing price pressures.
Fed Chairman Jerome Powell said that any future policy decisions would be made on a meeting-by-meeting basis and that in the current environment, officials can only provide limited guidance about what is next for monetary policy. 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 June meeting has been weaker than expected, the central bank has been reluctant to alter its 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 continues to outperform expectations given the rapid increase in interest rates.
The US government is expected to report that the economy grew at a 1.8% annual pace in the second quarter, according to economists polled by Reuters. Powell said he is still holding out hope the economy can achieve a “soft landing,” a scenario in which inflation falls, unemployment remains relatively low, and a recession is avoided. However, he noted that the outlook is “a long way from assured”.
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 2023.
