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27/07/2023 10:27

US Fed hikes interest rates to highest level since 2001

On Wednesday, the Federal Reserve implemented a quarter-percentage-point increase in interest rates, explaining that the decision was motivated by persistently high inflation. This rate hike marked the 11th increase in the past 12 meetings, bringing the benchmark overnight interest rate to a range of 5.25%-5.50%, the highest in 16 years. The accompanying policy statement maintained the possibility of further rate increases in the future.

The Federal Open Market Committee indicated that it would continue to assess incoming data and its impact on monetary policy to determine the extent of any additional rate adjustments required to achieve its 2% inflation target. Despite weaker-than-expected inflation data since the June meeting, policymakers remained hesitant to shift from their hawkish stance until they observe more progress in reducing price pressures.

Inflation levels still exceed the Fed's target, while the economy has been performing better than anticipated, supported by a low unemployment rate of 3.6%. Job gains were described as "robust," and the economy's growth was upgraded slightly from "modest" to "moderate" compared to the June meeting. Economists predicted that the U.S. government would report a second-quarter annual growth rate of 1.8%, according to a Reuters poll.

The Federal Reserve now faces an extended period of about eight weeks until its next meeting, during which continued moderation in inflation rates could potentially lead to this being the final rate hike in a series that began with a cautious increase in March 2022 and has since accelerated, representing the most rapid monetary tightening since the 1980s.

Fed Chair Jerome Powell held a press conference to provide further insight into the decision and policy statement, offering more details on the factors that may drive the central bank toward or away from another rate increase.

According to the most recent economic projections from Fed policymakers, 12 out of 18 officials expected at least one more quarter-percentage-point increase by the end of the year.