Federal Reserve raises interest rates to highest since 2001


Federal Reserve raises interest rates to highest since 2001


Senior Reporter


The Federal Reserve raised the target range for its benchmark interest rate by 0.25% on Wednesday and left the door open to more rate hikes.

The rate hike brings the Fed’s policy rate, the federal funds rate, to a new range of 5.25% and 5.5%, the highest level since March 2001.

Wednesday’s rate hike marks the central bank’s eleventh increase since March 2022 and comes after the Fed held rates steady in June. In its statement on Wednesday, the Fed signaled future rate hikes will be contingent on the impact of previous rate hikes on the economy and financial developments.

“In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed’s statement read.

The decision was unanimous.

Fed officials added that they will continue to assess additional information and its implications for monetary policy, reiterating in their statement they still view inflation as “elevated,” and noting they remain “highly attentive” to inflation risks, despite a cooler reading on inflation in June.

Inflation data out earlier this month showed that on a “core” basis — which strips out the more volatile costs of food and gas — inflation rose 4.8% over the prior year in June. Including food and energy, headline inflation rose 3% in June, down from a peak of 9% last year and slowest annual increase since March 2021.

Officials also upgraded their assessment of the economy, characterizing growth as “moderate,” up from “modest” last meeting.

“Recent indicators suggest that economic activity has been expanding at a moderate pace,” the Fed said in its statement. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.”

Back in June, officials penciled in two more rate hikes for the second half of the year based on higher expectations for core inflation. The Fed now expects inflation to end the year closer to 4% up from 3.6% previously, nearly double the Fed’s inflation target.

With one rate hike down and potentially one more to go, the central bank would need to see more readings on inflation that show cooling similar to what was seen in June.

U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on June 14, 2023. The U.S. Federal Reserve on Wednesday kept the target range of the federal funds rate unchanged at 5 percent to 5.25 percent, following a slew of 10 consecutive hikes since March 2022. (Photo by Liu Jie/Xinhua via Getty Images)

U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on June 14, 2023. (Photo by Liu Jie/Xinhua via Getty Images)

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