The Federal Reserve approved Wednesday a 1% interest rate increase, bringing borrowing costs up to their highest level since 2001.
On Wednesday, the Federal Reserve approved a much-anticipated interest rate increase that will take benchmark borrowing costs up to their highest levels in over 22 years.
Federal Open Market Committee of the central bank raised its funds rates by a quarter point, a move which was fully priced into financial markets. The new target range is now 5.25%-5.5%. The midpoint would be the highest benchmark rate since 2001.
The hike reflects the latest effort on the part of the Fed to rein in inflation.
These points show the Federal Reserve’s attempts to control inflation and economic growth by adjusting interest rates and other monetary policies. The Fed closely monitors economic data in order to make future decisions. It is currently focusing on managing inflationary forces while maintaining economic stability.
The statement made after the meeting emphasized a data-driven approach to future actions, rather than a fixed schedule.
The Fed will raise rates for the 11th consecutive time in March 2022 as part of the tightening of the monetary policy. Fed Chairman Jerome Powell hinted that there could be more to come as he expressed concern about mitigating inflation. Powell stated in his press conference on Wednesday, immediately following the meeting: “We have covered a great deal of ground and we are still feeling the full effects of tightening.”
Powell’s summary was optimistic about the move.
The Fed has made progress but has not reached its goal. The bankers said in June that they would be willing to increase rates two more quarter-points before the year ends.
Rate hikes can cause a recession because they take time to show results. Some economists believe that the Fed should hold rates at their current level after Wednesday’s decision.
Some economists, however, believe that the rate increase in July will be the final one for this cycle. They cite progress made on inflation and an economy in decline.
Powell concluded his remarks with the following:
Our mandate is to ensure maximum employment for the American public and stability. This guides our monetary policy. We are all aware of the hardships that high inflation can cause, as it reduces purchasing power. This is especially true for those who have less money to pay higher prices for essentials like housing, food, and transportation. We are very aware of the risks that high inflation poses for both sides to our mandate, and are committed to returning inflation back to our 2-percent target.
