Federal Reserve officials raised interest rates by 75 basis points for the second straight month and Chair Jerome Powell left the same move again on the table for the next meeting in September, depending on how the data comes in.
Policymakers, facing the hottest cost pressures in 40 years, lifted the target for the federal funds rate on Wednesday to a range of 2.25% to 2.5%. That takes the cumulative June-July increase to 150 basis points — the steepest since the price-fighting era of Paul Volcker in the early 1980s.
“While another unusually large increase could be appropriate at our next meeting,” that will depend on the data between now and then, Powell said during a press conference following a two-day policy gathering in Washington.
The Fed will also slow the pace of increases at some point, Powell said. In addition, he said officials would set policy on a meeting-by-meeting basis rather than offer explicit guidance on the size of their next rate move, as he has done recently.
Those comments sparked a rally in U.S. stocks as Powell spoke, with Treasury yields tumbling along with the dollar.
The Federal Open Market Committee “is strongly committed to returning inflation to its 2% objective,” it said in a statement, repeating previous language that it’s “highly attentive to inflation risks.”
The FOMC reiterated it “anticipates that ongoing increases in the target range will be appropriate,” and that it would adjust policy if risks emerge that could impede attaining its goals.
What Bloomberg Economics Says…
While many are worried that the economy is verging on recession, Fed officials see the glass as half full, with the strong labor market allowing the economy to withstand rapid monetary tightening. Bloomberg Economics thinks there’s little chance that the Fed will pause its rate hikes later this year, as markets currently expect. – Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger
The FOMC vote, which included two new members — Vice Chair for Supervision Michael Barr and Boston Fed President Susan Collins — was unanimous. Barr’s addition to the board earlier this month ghereave it a full complement of seven governors for the first time since 2013.
Criticized for misjudging inflation and being slow to respond, officials are now forcefully raising interest rates to cool the economy, even if that risks tipping it into recession.