The Fed Unveils A Rate Hike Of 75 Basis Points, Weakening Economic Data

The Fed raises the policy rate to a range of 2.25% to 2.50% in the US. Central bank weakens economic data Fed Powell to speak at 2:30 pm EDT (1830 GMT)

WASHINGTON, July 27 (Reuters) – The Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday in an effort to cool the most intense burst of inflation since the 1980s, with “continuous increases” in borrowing costs. still ahead despite evidence of an economic slowdown.

“Inflation remains elevated, reflecting pandemic-related supply-demand imbalances, higher food and energy prices, and broader price pressures,” the Federal Market Committee said Open that set rates while raising the policy rate to a range of 2.25% to 2.25%. 2.50% by unanimity.

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

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But while job gains have remained “solid,” officials noted in the new policy statement that “recent indicators of spending and output have softened,” a nod to the fact that the aggressive rate hikes they’ve been putting in place since March are beginning to bite. .

In addition to a 75 basis point hike last month and smaller moves in May and March, the Fed has raised its policy rate by a total of 225 basis points this year as it battles a break in inflation from eighties with the 1980s. style monetary policy.

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The policy rate is now at a level most Fed officials believe has a neutral economic impact, marking the end of pandemic-era efforts to encourage household and business spending with cheap money. The rate also matches the high point of the central bank’s previous tightening cycle from late 2015 to late 2018, a level reached this time in just four months.

The latest policy statement gave little explicit guidance on what steps the Fed may take next, a decision that will depend largely on whether upcoming data show inflation is starting to ease.

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

“From there, the Fed may slow its pace of tightening, reassured by the likely peak in inflation and the pullback in inflation expectations as oil prices have fallen,” he said. said Seema Shah, chief global strategist at Principal Global Investors, in a note. “However, with the labor market still a picture of strength, wage growth still uncomfortably high, and core inflation set to decline at a glacially slow pace, the Fed certainly cannot stop tightening, nor can it cut too many gears.”

Fed Chairman Jerome Powell is likely to provide more details at a news conference starting at 2:30 pm EDT (1830 GMT).

In the US Treasury market, which plays a key role in transmitting the Fed’s policy decisions to the real economy, yields were little changed by the Fed’s announcement, with the yield on the 10-year down 2 basis points per day and the 2-year note yield unchanged.

Wall Street stocks held on to big gains in the session, while the dollar fell against a basket of currencies from major trading partners.