Fed Raises Interest Rates, Leaves The Door Open To Another Increase

• The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, citing still elevated inflation as a rationale for what is now the highest U.S. central bank policy rate in 16 years. The rate hike, the Fed's 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range, and the accompanying policy statement has left the door open to another increase.
• "The Federal Open Market Committee will continue to assess additional information and its implications for monetary policy," the Fed said in language that was little changed from its June statement and left the central bank's policy options open as it searches for a stopping point to the current tightening cycle.
• "The forward guidance remains unchanged as the committee leaves the door open to further rate hikes if inflation does not continue to trend lower," said Kathy Bostjancic, chief economist at Nationwide. "Our view is the Fed is likely done with rate hikes for this cycle since continued easing of inflation will passively lead to tighter policy as the Fed holds the nominal fed funds rate steady into 2024."
• Core inflation remains more than double the Fed's target, and the economy by many measures, including a low 3.6% unemployment rate, continues to outperform expectations even amid rapid increase in interest rates.
• Job gains remain "robust," the Fed said, while it described the economy as growing at a "moderate" pace, a slight upgrade from the "modest" pace seen as of the June meeting. The U.S. government on Thursday is expected to report the economy grew at a 1.8% annual pace in the second quarter, according to economists polled by Reuters.
• However, with about eight weeks until the next Fed meeting, a longer-than-usual interlude, continued moderation in the pace of price increases could make this the last rate hike in a process that began with a cautious quarter-percentage-point increase in March of 2022 before accelerating into the most rapid monetary tightening since the 1980s.

(Source: Reuters)