What message did the Fed send after raising interest rates to a 22-year high?

07/27/2023 08:21 Nhat Linh Print article

ANTD.VN - The Fed raised interest rates by 0.25 percentage points, to the highest level in 22 years, after pausing in June. The central bank also signaled the need to continue tightening further to curb inflation.

On July 26 (early this morning Vietnam time), the US Federal Reserve (Fed) raised interest rates by 0.25 percentage points after pausing in June.

The rate hike was announced after the Fed's two-day policy meeting, which raised the federal funds rate, the basis for banks to calculate interest on overnight loans, to a new target range of 5.25% to 5.5% - the highest level since 2001.

The Fed said the job market remained strong and the economy was growing at a "moderate" pace. That was a more upbeat assessment than in June, when Fed officials said growth was "modest."

What message did the Fed send after raising interest rates to the highest level in 22 years? photo 1

Fed raises interest rates to 22-year high

The Fed has raised interest rates 11 times since March 2022 to cool inflation. Last month, it paused its tightening process to assess the state of the economy following the collapse of three regional banks earlier this year.

One encouraging sign is that inflation in the US has cooled down in recent months. However, the Fed's announcement affirmed that "inflation is still accelerating" and that the agency "remains very concerned about inflation risks."

Therefore, the Fed believes that tightening is still necessary. "In deciding the appropriate level of tightening to gradually return inflation to 2 percent, the Committee will assess the overall performance of monetary policy, the lags in its effects on economic activity and inflation, and other economic and financial developments," the Fed said in a statement.

The agency’s preferred inflation measure, the Personal Consumer Expenditures Price Index (PCE), rose 3.8% in May from a year earlier, down from a year earlier. Core PCE, however, was nearly flat in April. The Commerce Department will release June figures this week.

Fed officials stressed that they will base their decisions on the data and adjust them on a meeting-by-meeting basis. The next Fed meeting is in September.

"We intend to continue tightening policy until we are confident that inflation is moving steadily toward our 2% objective. We are also prepared to tighten further if appropriate. There is still a long way to go," Fed Chairman Jerome Powell said at a press conference.

He said the Fed would likely raise or hold interest rates steady in September but would only cut rates when it felt comfortable, and that would not happen this year.

However, the market is still expecting the Fed to stop raising interest rates after this meeting and the US will have a "soft landing", with inflation at 2% without causing the world's number 1 economy to fall into recession.

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