The U.S. Federal Reserve on Wednesday raised the interest rate by 0.25 percentage points to 5.5 percent. This is the highest interest level seen in the last 22 years.
During a press conference following the latest policy move, Powell emphasized that the central bank is closely monitoring incoming data, particularly for indications of the economy moving towards a period of “below-trend” growth, which he believes is necessary for inflation to decrease.
Following the release of the Federal Reserve’s policy statement, Treasury rates in the United States experienced volatility, leading to a decline. However, U.S. stocks concluded the day with a relatively flat performance. Futures markets indicated minimal fluctuations in betting on the trajectory of Fed rate increases for the remainder of the year, with only a slight possibility of a hike in September.
Fed’s inflation tackling and indicator monitoring
The U.S. Federal Reserve’s decision to raise interest rates, as anticipated, followed two days of meetings. Inflation remains a persistent concern for the central bank, prompting the 11th rate hike in the last 12 meetings aimed at curbing the surging prices.
Nonetheless, the central bank remains vigilant, ready to respond to the evolving economic data and inflation outlook, while also considering the risks associated with falling inflation and weak economic indicators. Powell emphasized that decisions will be made on a meeting-by-meeting basis, carefully evaluating the incoming data’s implications on economic activity and inflation dynamics, along with the balance of risks.
Key price indicators are continuing to rise at a rate that exceeds the Fed’s target, with inflation showing a slowdown but no noticeable impact on the job market, which maintains a low unemployment rate of 3.6 percent. Economic growth has remained above the Fed’s estimated 1.8 percent trend rate, with analysts predicting similar growth in second-quarter GDP.
Possibility of another hike in September
While Federal Reserve Chair Jerome Powell expressed optimism for a “soft landing” of the economy, wherein inflation decreases, unemployment remains low, and a recession is averted, his remarks on the necessity for slower development hint at a possible inclination towards higher rates to exert greater pressure on demand.
Powell stated, “It is certainly possible that we would raise the (federal) funds rate again at the September meeting if the data warranted it, and I would also say that it is possible that we would choose to hold steady at that meeting if that was the right policy call.”
While the Fed remains open to future rate adjustments, Powell cautioned against expecting any rate cuts in the immediate future, affirming, “We’ll be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year.”
Fed Chair Jerome Powell acknowledged the positive development of reduced inflation from last year’s highs. However, as the central bank navigates a challenging phase in its fight against inflation, it faces the delicate task of balancing the need for future rate hikes against the risks of going too far, potentially resulting in economic losses.
