The U.S. Federal Reserve has raised interest rates by 25-basis points, taking borrowing costs in America to their highest level in 22 years.
In a move that financial markets had fully priced in, the U.S. central bank raised its Federal Funds rate by a quarter of a percentage point to a new target range of 5.25% to 5.50%, which is the highest level for the benchmark rate since 2001.
During a press conference, Federal Reserve Chair Jerome Powell said inflation “has a long way to go” to get back to the central bank’s annualized 2% target.
“I would say it’s certainly possible that we will raise funds again at the September meeting if the data warranted,” said Powell. “And I would also say it’s possible that we would choose to hold steady and we’re going to be making careful assessments…”
Markets initially rose following the meeting but ended mixed with the Dow Jones Industrial Average continuing its streak of higher closings but the S&P 500 and Nasdaq indices little changed.
The latest interest rate hike is the 11th time that the Fed has raised rates since March 2022. The central bank held rates steady at its previous June meeting as it assessed the impact that the hikes have had on the U.S. economy.
This is the most aggressive rate hike cycle in America since the early 1980s, when the central bank was also battling high inflation.
Inflation in the U.S. has been coming down. The Consumer Price Index (CPI) this June rose an annualized 3%, down from a peak of 9.1% in June 2022.
However, inflation in the U.S. was at 4.8% this June when excluding volatile food and energy prices. The latest data points to inflation that is still above the Federal Reserve’s 2% target.
The U.S. central bank is next scheduled to decide on interest rates September 20.
