Bloomberg News reports that the Federal Reserve hiked interest rates by a quarter percentage Wednesday. It cited inflamed inflation as the reason for the hike in rates. It is now the highest US central bank policy interest rate in the last 16 years.
Fed’s hike in interest rates
The surge in rate, which is the Fed’s 11th in the last 12 meetings, has established a benchmark overnight. The interest rate ranges between 5.25% and 5.50%. Also, the accompanying policy statement has kept the doors open for other increases.
What is the role of FOM or the Federal Open Market Committee?
The Federal Open Market Committee plans to continue assessing additional information and the impact related to the monetary policy. The Fed stated the same as it released a statement similar to the June statement. Not only that, the Fed also left the policy options of the central bank open as it continues to search for the halting point for the present tightening cycle.
It revealed in June that it would be monitoring the incoming data and studying the effect of the rate hikes on the economy. It would do so to determine the extent to which additional policy would firm and is appropriate for the economy in reaching the 2% inflation target.
The inflation data has been weak since the meeting of the Fed in June compared to what was expected. The policymakers are reluctant to alter the hawkish stance until there is progress in the reduction of the price pressures.
What about the key measures of inflation?
The key measures of inflation continue to remain more than twice the Fed’s target as well as the economy by several measures. This also includes a low 3.6% unemployment rate and continues to surpass in performance compared to the expectations given the rapid surge in the rate of interest.
Employment scenario in the June meeting
The Fed also stated in the June meeting that the job market continues to stay robust. The economy has been growing at a steady pace. On Thursday, it is anticipated that the US government will report that the economy has been growing at a 1.8% annual rate in the second quarter, as economists say.
Fed Chair Jerome Powell will hold a press conference at 1830 GMT (2.30 pm EDT) to elaborate on its decision and the policy statement. It will also furnish details on the probable factors that might push the central bank for yet another rise in the rate or away from one.
In the latest economic forecast from the Fed policymakers, Bloomberg News reports that 12 out of the 18 officials anticipate that at least one more quarter percentage point hike would be required by the end of the current year.
