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July 26, 2023 at 02:20 PM
The Federal Reserve raised interest rates to the highest level in 22 years and left the door open to additional increases as officials fine-tune their effort to further quell inflation.
The quarter percentage-point hike, a unanimous decision, lifted the target range for the Fed’s benchmark federal funds rate to 5.25% to 5.5%, the highest level since 2001. It marked the 11th increase since March 2022, when the rate was near zero.
“The committee will continue to assess additional information and its implications for monetary policy,” the central bank’s Federal Open Market Committee said in a statement published Wednesday in Washington, which overall was almost identical to its previous statement in June.
“In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Together, those sentences suggest that officials are holding their options open to either hike again at their next meeting in September, or pause or skip an increase depending on incoming data.
Treasury yields fell, the S&P 500 index pared the day’s losses and the dollar slid.
Swaps traders held fairly steady the probability they see of the Fed hiking rates by an additional quarter point before year’s end. The pricing implies just slightly over 50% chance of another bump higher before the Fed tightening cycle ends.
Fed Chair Jerome Powell will offer more guidance at a 2:30 p.m. press conference.
The Fed has since early last year engaged in the most aggressive tightening campaign since the 1980s in an effort to curb inflation, which in 2022 hit a 40-year high.
