Fed opts for 75 basis point rate hike, flags weaken economic data

The Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday in a bid to rein in the steepest inflation spike since the 1980s, with “continued increases” in costs Borrowing still ahead despite evidence of a slowing economy.

“Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, rising food and energy prices, and broader price pressures,” the Federal Open said. Market Committee responsible for setting rates by raising the key rate to a range between 2.25% and 2.50% unanimously.

The FOMC added that it remained “very attentive” to inflation risks.

But while jobs gains remained “robust,” officials noted in the new policy statement that “recent spending and output indicators have softened,” a nod to the fact that the aggressive set rate hikes they’ve implemented since March are starting to bite.

Along with a 75 basis point hike last month and more modest moves in May and March, the Fed has raised its key rate by a total of 225 basis points this year as it battles a breakout. inflation at 1980s levels with 1980s-style monetary policy.

The key rate is now at the level most Fed officials believe is neutral in economic impact, effectively marking the end of pandemic-era efforts to encourage household and business spending with cash. cheap.

The latest policy statement gave little explicit guidance on what next steps the Fed might take, a decision that will hinge heavily on whether the upcoming data shows that inflation is beginning to ease.

With the most recent data showing consumer prices rising at an annual rate of more than 9%, investors expect the U.S. central bank to raise the policy rate by at least half a percentage point in its September meeting.

Fed Chairman Jerome Powell will likely provide more details at a press conference beginning at 2:30 p.m. EDT (6:30 p.m. GMT).

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