Fed hikes interest rates to 22-year high
The Federal Reserve resumed its campaign of interest rate increases, pushing its target rate up another 0.25 percentage point to the highest level in 22 years.
What they're saying: "Recent indicators suggest that economic activity has been expanding at a moderate pace," the policy-setting Federal Open Market Committee said in a statement announcing the action.
- In June, the committee had called it a "modest pace," which implies a very slight upgrade to their assessment of conditions after a run of strong economic data.
- "Job gains have been robust in recent months, and the unemployment rate has remained low," the committee said, repeating past language, while also noting again that "inflation remains elevated."
Between the lines: There were only the slightest of changes to the committee's June policy statement, and no hint that the Fed might react to benign inflation data in recent weeks by suspending its interest rate hikes.
- As of June, most policymakers envisioned raising interest rates two more times in 2023. The absence of new language to the contrary implies that the plan is still operative, which would mean one more rate hike in the months ahead.
By the numbers: The last time the federal funds rate was this high was early 2001.
- This marks the Fed's 11th rate hike since March 2022, and comes as inflation has receded from recent highs of around 9% last year to 3% for the 12 months ended in June.
- The decision was unanimous.
What's next: Speaking to reporters, Fed chair Jerome Powell indicated that the central bank would embrace a "meeting by meeting" approach in determining whether it will raise rates further.
- It is "certainly possible" the Fed would raise rates again in September, before adding it's also "possible that we would choose to hold steady at that meeting."
Catch up quick: The June Consumer Price Index report showed a sharp drop in overall inflation. Other data has suggested that while the labor market remains tight, the pace of hiring is slowing. All of that aligns with what the Fed wants to see to help bring inflation back to its 2% target.
- "We're going to be careful about taking too much signal from a single reading," Powell said, in response to a question about why that data didn't support a decision to hold rates steady again.
Of note: Powell said the Federal Reserve staff economists were no longer forecasting a recession this year, "given the resilience of the economy recently."
- Those forecasts, which are independent from those produced by Fed officials, as recently as a June meeting showed a "mild recession" beginning later this year.
Editor's note: This story was updated with additional information.