Fed raised interest rates to the highest level in 22 years


After a one-month pause, Fed resumed raising interest rates and signaled further tightening later this year.

On July 26, after a two-day policy meeting, the Fed announced to raise interest rates by 25 basis points (0.25%). The reference interest rate in the US is currently around 5.25-5.5% – the highest since 2001.

The Fed considers the job market to remain strong and the economy to grow at a “moderate” rate. This assessment is more upbeat than in June, when Fed officials called growth “modest”.

Last month, the Fed paused the tightening process to assess the state of the economy after the collapse of three local banks earlier this year. To date, this agency has increased interest 11 times since March 2022, in order to cool down inflation, which is still double the target.

The Fed’s interest rate applies to interbank overnight loans. While this isn’t what consumers pay, it can still affect the loan and savings rates they come into contact with on a daily basis, such as taking out a home loan, buying a car, or using a credit card.

Fed officials also forecast another rate hike this year. Inflation in the US has cooled down in recent months. This is good news for both people and businesses in this country. However, the Fed’s announcement affirmed that “inflation is still accelerating” and that the agency “remains very concerned about inflation risks”.

In order to decide on the appropriate level of tightening to bring inflation gradually back to 2%, the committee will make an overall assessment of monetary policy, the lag of its impact on economic activity and inflation, as well as other factors. other economic and financial developments,” the Fed said in a statement.

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The agency’s preferred inflation gauge – the Personal Consumption Price Index (PCE) – rose 3.8% in May compared with the same period a year ago, down significantly from the previous month. However, core PCE is almost the same as April. The US Department of Commerce will release June data this week.

Fed officials still keep the option to raise interest rates again, in case inflation is stronger than forecast. However, the timing of the rise is still a question mark. Even this may not happen and the Fed will move to a new phase of the fight against inflation, which is to keep interest rates stable until inflation reaches the right target.

Investors are still betting on the possibility that the Fed will soon stop raising interest rates and the US will have a soft landing – inflation to 2% without causing the economy to decelerate sharply. However, Fed officials emphasized they will make decisions based on the data and adjust each session. The next Fed meeting will be in September.

“We still intend to tighten policy until we are confident that inflation is cooling down sustainably, towards the 2% target. We are also ready to tighten more if appropriate. The road is still long.” “, Fed Chairman Jerome Powell said in a press conference.

He said the Fed will probably raise, or leave rates unchanged in September. However, Powell also warned that “will only cut rates when it feels comfortable and that won’t happen this year”.

The Fed chair still expects the economy to have a soft landing and said economists at the Fed no longer forecast the prospect of a recession.

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