Washington the Washington US Federal Reserve raised its base lending rate at the highest since 2001, in an effort to curb over-target inflation. It also signaled that it could increase rates further to come in the near future.
The quarter-percentage-point rise lifts the key lending rate to a range between 5.25 percent and 5.5 percent, the US central bank said, adding that it will “continue to assess additional information and its implications for monetary policy.”
It is the rate-setting Federal Open Market Committee (FOMC) employed similar words in its vote to keep the rate at a steady level in June and the most recent statement suggests that policymakers may be considering an additional pause during their September meeting.
But it is worth noting that the Fed added that it would examine a variety of information “in determining the degree of any additional policy tightening” suggesting that policymakers believe there is a chance of further loosening in the coming months.
In a press conference after the announcement, Fed chair Jerome Powell insists that no decision is taken on a hike each and every meeting according to some experts.
“We’re going to go one meeting at a time,” he said, noting that the Fed will continue to follow a “data-dependent” strategy.
“Long route to take”
In the last FOMC meeting in June, the median forecast predicted two more rate hikes in the coming year.
The latest quarter-percentage-point rise, which was in line with analysts’ expectations, is the Fed’s 11th since it began an aggressive campaign of monetary tightening last March in response to rising prices.
While inflation continues to decrease since the announcement in June to put a halt on the rate increases, it’s still over the Fed’s goal for the long term of 2 percent, which suggests that more intervention from the Fed could be required.
The unemployment rate has been near historic lows as economic growth for the initial quarter was revised upwards significantly based on robust consumption data.
“Inflation has been a bit lower in the last half of the calendar year,” Powell said on Wednesday.
“Nonetheless this method of getting inflation down to 2% has been a long road to travel,” he added.
The economic improvement increases the odds of a “soft landing” where the Fed can bring down the rate of inflation through raising interest rates, while also avoiding recession, and also a rise in unemployment.
The following day, Powell reiterated that he believes a smooth landing remains feasible.
“It was my opinion always that we have a chance,” He stated, and added: “That’s been my view for a long time, and that’s the view I hold.”
Powell reported to the media that the expectations of his team of a recession that could begin at the end of the year have diminished in the wake of more encouraging economic news has been released.
“The team is experiencing an apparent decrease in growth that is beginning at the end of this year’s projection, however, given that the economy has been resilient lately, they’re no more forecasting recessions,” He added.
As investors have mostly or all predicted a rate increase the previous day, they have doubted whether another rate hike is likely during the next Fed meeting scheduled for September.
Futures traders have an odds of around 20 percent of the FOMC will increase rates in September, as per CME Group.