Fed increases rates to highest level in 22 years

Written on 07/27/2023
Team UCapital 24

The US Federal Reserve raised interest rates by 25 basis points, as expected, taking benchmark borrowing costs to their highest level in more than 22 years.

In a move priced in by financial markets, the central bank's Federal Open Market Committee raised its funds rate by a quarter percentage point to a target range of 5.25%-5.50% but left the way open for further increases, although guidance was not specific.

Wednesday's increase followed a brief reprieve at the previous meeting in June, when the FOMC held the benchmark rate steady.

"The committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," a statement from the Federal Reserve said.

"The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals."

The Fed said recent indicators suggest that economic activity has been expanding at a moderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.

The US banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.