The Fed raised rates by 0.75 basis points for the second month in a row

The Federal Reserve raised its benchmark policy rate by 0.75 percentage points for the second month in a row on Wednesday as it doubled down on its aggressive approach to curbing rising inflation, despite early signs that the US economy is starting to lose steam.

At the end of its two-day policy meeting, the Federal Open Market Committee raised the target range for the federal funds rate to 2.50 percent from 2.25 percent.

In a statement accompanying the announcement, the FOMC said it “expects current increases in the target range to be appropriate.”

The decision, which had unanimous support, extended a string of interest rate hikes that began in March. throbbed scale as the central bank’s battle to fight inflation intensifies.

The rate hike means the central bank is in its most aggressive cycle of monetary tightening since 1981. That’s a half-point rate hike in May and a 0.75 percentage-point rate hike last month — the first of that size since 1994. .

The new target range is now near what most officials see as a “neutral rate” that does not stimulate or constrain growth if inflation stays within the 2 percent target.

with inflation running Further interest rate hikes are expected in the second half of 2022, at their fastest pace in more than four decades, but the pace of those increases is hotly debated. Economists are split on whether the central bank will implement another 0.75 percentage point rate hike at its next meeting in September or opt for a smaller half-point hike.

On Wednesday, the central bank acknowledged the early signs Economy It’s off to a slow start, but has shown little sign of wavering from its “unconditional commitment” to restoring price stability.

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In its report, the central bank changed its assessment of the economy, noting that “recent indicators of spending and output have softened,” a more bearish view than last month when it said “economic activity is emerging.”[ed] Should have taken”.

Top officials have said earlier that “” because of failure to bring inflation under control.took root” would be a worse outcome than moving too aggressively.

The federal funds rate is expected to reach around 3.5 percent this year, which will further curb economic activity. Most officials believe that policy should be “restrictive” to reduce demand to the point where price growth is controlled.

Officials have previously signaled that before the central bank eases its efforts to tighten monetary policy, there needs to be “clear and convincing” evidence that inflation is beginning to fall.

Central bank policymakers want to see monthly inflation gauges fall, but economists warn that won’t happen for months, at least as “core” gauges strip out volatile items like food and energy.

In June, core goods and services registered a 0.7 percent rise. Rent and other housing expenses And other costs may go up in the fall.

The central bank raised rates a day before releasing gross domestic product figures that could show a second straight quarter of economic growth. That would meet one of the common criteria for a tech recession, but officials have pointed to other signs of economic strength — including Strong Labor market – to challenge that recommendation.

Contradictory economic data points could make the central bank’s job more difficult, while increasing pressure on the central bank to slow the pace of rate hikes.

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Officials still maintain that inflation can be brought down to the central bank’s 2 percent target without major job losses.

Markets moved little in response to the report, which said a 0.75 percentage point increase was fully expected by investors.

A small move in the two-year yield pushed the spread between the two- and 10-year yields further into negative territory, to its lowest level since 2000. Two-year yields move with interest rate expectations and 10-year moves. With economic growth expectations.

Ashish Shah, chief investment officer at Goldman Sachs Asset Management, said: “This is an expected number. A lot of drama has come out of this phase. We’re past peak hawks.

“The central bank is benefiting from being more verbally aggressive[in signalling future rate rises]. . . They succeeded in quickly tightening financial conditions ahead of the real tightening, and we are seeing the results,” he added.

James Knightley, chief international economist at ING, said: “Inflation is the central bank’s number one priority and they are willing to sacrifice growth to achieve it.”

“Rate cuts are firmly on the cards for next year. The two- and 10-year yield curve inverts to multi-year lows. It will be difficult to avoid an outright recession,” he added.

Additional reporting by Kate Dukitt

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