The Federal Reserve has implemented a 25 basis points (bps) increase in the federal funds rate, as disclosed in the recent Federal Open Market Committee (FOMC) report. This move comes amidst reports of moderate growth in the U.S. economy and aims to control inflation effectively.
Following a brief pause last month, the U.S. Federal Reserve has once again raised the federal funds rate by 25bps. This decision was widely anticipated, with CME’s Fedwatch tool indicating a 99% probability of the rate hike. In its statement, the FOMC assured that the U.S. banking system remains solid and resilient.
However, the committee expressed concerns about potential adverse effects on economic activity, hiring, and inflation due to tighter credit conditions for households and businesses. The magnitude of these impacts remains uncertain, and the committee is diligently monitoring inflation risks. As always, the Fed remains committed to achieving a 2% annual inflation rate over the long term. The Fed stated:
“In support of these objectives, the Committee has chosen to increase the target range for the federal funds rate to 5-1/4 to 5-1/2 percent.”
The future of this 25bps increase is uncertain, as former Fed chair Ben Bernanke and several economists suggest that it could mark the end of the rate hikes. Presently, the federal funds rate stands at its highest level in 22 years, with 30-year mortgage rates ranging between 6.25% to 6.5% this week, according to bankrate.com.
The FOMC reiterated its vigilant approach in closely monitoring incoming economic data. Should any risks arise that may hinder the committee’s objectives, adjustments to the monetary policy stance could be considered. The committee’s future evaluations will be guided by various factors, including labor market conditions, inflation pressures and expectations, as well as financial and international developments.
Though the FOMC statement resembles last month’s, there have been some minor changes, as highlighted by CNBC. Federal Reserve Chair Powell mentioned that a rate adjustment in September is “certainly possible,” but a pause is also on the table. “We haven’t made any decisions about any future meetings,” Powell clarified.
Frequently Asked Questions (FAQs) about Interest rate hike
What was the recent decision made by the Federal Reserve?
The recent decision made by the Federal Reserve was to raise the federal funds rate by 25 basis points (bps) amid moderate economic growth.
Why did the Federal Reserve raise the interest rate?
The Federal Reserve raised the interest rate to control inflation. As the U.S. economy experienced moderate growth, the rate hike was seen as a measure to keep inflation in check.
How much was the increase in the interest rate?
The interest rate was increased by 25 basis points (bps) by the Federal Reserve.
What is the target range for the federal funds rate after the increase?
Following the increase, the target range for the federal funds rate stands at 5-1/4 to 5-1/2 percent.
Are there concerns about the impact of the interest rate hike on the economy?
Yes, the Federal Reserve expressed concerns that tighter credit conditions for households and businesses could have a negative impact on economic activity, hiring, and inflation. However, the extent of these effects remains uncertain.
How does the Federal Reserve plan to address inflation risks?
The Federal Reserve remains attentive to inflation risks and continues to focus on achieving a 2% annual inflation rate over the longer term.
Is the interest rate hike likely to be the last one?
The fate of the 25bps increase remains uncertain, with former Fed chair Ben Bernanke and some economists suggesting it could be the final hike.
What factors will guide the Federal Reserve’s future assessments?
The Federal Reserve will base its future assessments on a comprehensive range of factors, including labor market conditions, inflation pressures and expectations, and financial and international developments.
What did Federal Reserve Chair Powell say about future rate moves?
Federal Reserve Chair Powell mentioned that a rate move in September is “certainly possible,” but a pause is also possible. The Fed has not made any decisions about future meetings yet.
How does the Federal Reserve monitor economic information?
The Federal Reserve emphasizes its vigilance in closely monitoring incoming economic information to assess any potential risks that could affect the committee’s objectives.
More about Interest rate hike
- Federal Reserve Raises Interest Rates by 25bps
- Federal Open Market Committee (FOMC) Report
- U.S. Economy and Economic Growth
- Inflation Control Measures
- CME’s Fedwatch Tool
- Federal Reserve’s Target Range for Federal Funds Rate
- Concerns about Impact of Interest Rate Hike on Economy
- Federal Reserve’s Inflation Objectives
- Views on the Likelihood of Future Rate Hikes
- Factors Guiding Federal Reserve’s Assessments
- Statements by Federal Reserve Chair Powell
- Monitoring Economic Information