Fed opts for 75-basis-point rate hike, flags weakening economic data
- Fed raises policy rate to 2.25%-2.50% range
- US central bank flags weakening economic data
- Fed's Powell to speak at 2:30 p.m. EDT (1830 GMT)
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 breakout of inflation since the 1980s, with "ongoing increases" in borrowing costs still ahead despite evidence of a slowing economy.
"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the rate-setting Federal Open Market Committee said as it lifted the policy rate to a range of between 2.25% and 2.50% in a unanimous vote.
The FOMC added that it remains "highly attentive" to inflation risks.
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But while jobs gains have remained "robust," officials noted in the new policy statement that "recent indicators of spending and production have softened," a nod to the fact that the aggressive set of rate hikes they have put in place since March are beginning to bite.
Coming on top of 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 1980s-level breakout of inflation with 1980s-style monetary policy.
The policy rate is now at the level most Fed officials feel has a neutral economic impact, in effect marking the end of pandemic-era efforts to encourage household and business spending with cheap money.
The latest policy statement gave little explicit guidance about what steps the Fed may take next, a decision that will depend heavily on whether upcoming data shows inflation beginning to slow.
With the most recent data showing consumer prices rising at more than a 9% annual rate, investors expect the US central bank to raise the policy rate by at least half a percentage point at its September meeting.
Fed Chair Jerome Powell will likely provide more details in a news conference set to begin at 2:30 p.m. EDT (1830 GMT).
