US Fed raises interest rates by 25bps to 5.5%

July 27, 2023 (MLN): The U.S. Federal Reserve raised interest rates by 25 basis points to 5.25%-5.5% in a unanimous decision, bringing the benchmark funds rate to its highest level in 22 years.

This hike marks the 11th increase in the last 12 meetings.

To note, in the last meeting, the Fed decided to keep the rates unchanged for the first time in 15 months.

The committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In support of these goals, the committee decided to raise the target range for the federal funds rate, the Federal Open Market Committee (FOMC) in its latest statement noted.

In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook.

"The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals, it added.

Fed chair Jerome Powell in the press conference following the rate hike stated that they do not think there will be rate cuts this year, however, they could be cutting rates while continuing quantitative tightening.

Staff is no longer forecasting a recession, believes there is a path to a "soft landing", he added.

The interest rate hikes are meant to curb inflation by making borrowing more expensive, but they also slow down economic growth, which could lead to a recession.

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