The Federal Reserve has approved a much-anticipated interest rate hike, raising the benchmark borrowing costs to their highest level in over 22 years. The central bank’s Federal Open Market Committee (FOMC) raised the funds rate by a quarter percentage point to a target range of 5.25%-5.5%. The decision was widely expected by financial markets. Federal Reserve Chairman Jerome Powell stated that while inflation has moderated somewhat, it has not yet reached the Fed’s 2% target. The FOMC will continue to assess economic data and implications for inflation to determine future rate moves.
This is the 11th rate hike since the tightening process began in March 2022. The FOMC decided to skip the June meeting to evaluate the impact of previous rate increases. The committee has also been reducing its bond holdings on the balance sheet. The economy has shown resilience despite the rate hikes, with second-quarter GDP growth tracking at a 2.4% annualized rate. Employment has remained strong, with nonfarm payrolls expanding by nearly 1.7 million in 2023 and an unemployment rate of 3.6% in June. Inflation remains a concern, with the consumer price index rising 3% on a 12-month basis in June, above the Fed’s 2% target. The Fed’s preferred measure, the personal consumption expenditures price index, rose 3.8% on a headline basis and 4.6% on a core basis for May. The FOMC’s future rate moves will depend on incoming data, and the committee remains committed to a data-dependent approach.