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The Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday in an effort to cool the most intense breakout of inflation since the 1980s, with “ongoing increases” in borrowing costs still ahead despite evidence of a slowing economy.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the rate-setting Federal Open Market Committee said as it lifted the policy rate to a range of between 2.25% and 2.50% in a unanimous vote.
The FOMC added that it remains “highly attentive” to inflation risks.
But while jobs gains have remained “robust,” officials noted in the new policy statement that “recent indicators of spending and production have softened,” a nod to the fact that the aggressive set of rate hikes they have put in place since March are beginning to bite.
Coming on top of a 75-basis-point hike last month and smaller moves in May and March, the Fed has raised its policy rate by a total of 225 basis points this year as it battles a 1980s-level breakout of inflation with 1980s-style monetary policy.
The policy rate is now at the level most Fed officials feel has a neutral economic impact, in effect marking the end of pandemic-era efforts to encourage household and business spending with cheap money.
The latest policy statement gave little explicit guidance about what steps the Fed may take next, a decision that will depend heavily on whether upcoming data shows inflation beginning to slow.
With the most recent data showing consumer prices rising at more than a 9% annual rate, investors expect the U.S. central bank to raise the policy rate by at least half a percentage point at its September meeting.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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