Washington July 27 2022: 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.
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 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 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 the span of just four months.
