In the latest Federal Open Market Committee (FOMC) report, it was stated that the U.S. economy has been experiencing moderate growth and members of the committee have decided to raise the federal funds rate by 25 basis points (bps) in order to keep a handle on inflation.
Fed Raises Benchmark Bank Rate by 25bps
The U.S. Federal Reserve once again hiked the federal funds rate by 25bps after pausing the month prior. It was widely accepted that a 25bps rise was in the cards as CME’s Fedwatch tool said the probability was 99%. In the statement on Wednesday, the FOMC said that the U.S. banking system was sound and resilient.
Nevertheless, it expressed concern that tighter credit conditions for households and businesses might have a negative impact on economic activity, hiring, and inflation. The extent of these effects remains uncertain, and the committee remains attentive to inflation risks. Per usual, the Fed still is focused on obtaining a 2% annual inflation rate over the longer term. The Fed said:
In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent.
The fate of the 25bps rise remains uncertain, with former Fed chair Ben Bernanke and a significant number of economists suggesting it could be the final hike. The current federal funds rate stands at its highest point in over 16 years, while 30-year mortgage rates range between 6.25% to 6.5% this week, as reported by bankrate.com.
The FOMC emphasized its vigilance in closely monitoring the incoming economic information. Should any risks arise that could impede the achievement of the committee’s objectives, adjustments to the monetary policy stance may be made, it said. A comprehensive range of factors, including labor market conditions, inflation pressures and expectations, and financial and international developments, will underpin the committee’s future assessments.
While the FOMC statement is almost identical to last month’s, CNBC has outlined a few small changes in the latest report. The New York Times reports that Powell said a rate move in September is “certainly possible,” but a pause is also possible. “We haven’t made any decisions about any future meetings,” the Fed chair explained.
What do you think about the Fed hiking the interest rate by 25bps on Wednesday? Share your thoughts and opinions about this subject in the comments section below.