The Federal Reserve raised the federal funds rate by 25 basis points at the July Federal Open Market Committee (FOMC) policy meeting, lifting the target range to 5.25–5.50 percent. Rate-setting Committee members voted unanimously for the policy decision.
Interest rates are now at their highest levels since March 2001.
“Recent indicators suggest that economic activity has been expanding at a moderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low,” the FOMC stated. “The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.”
Policymakers may consider additional monetary firming to curb inflation, the FOMC noted.
“The Committee will continue to assess additional information and its implications for monetary policy,” the FOMC stated.
Moreover, the FOMC will stay the course on reducing the $8.3 trillion balance sheet that includes holdings of Treasury securities, agency debt, and mortgage-backed securities.
The U.S. financial markets were relatively unchanged following the rate decision, with the leading benchmark indexes teetering between positive and negative territory.
Treasury yields were mixed, with the benchmark 10-year yield down more than 2 basis points to below 3.89 percent. The 2-month yield picked up nearly 2 basis points to above 5.42 percent.
The U.S. Dollar Index, a gauge of the greenback against a basket of currencies, fell to about 101.20.
After 10 consecutive rate hikes that increased the benchmark rate by 500 basis points, the Fed skipped a rate hike at the June FOMC meeting.
The futures market had largely expected a quarter-point increase in the terminal rate. But investors are now debating whether the central bank will follow through on the June Summary of Economic Projections data (pdf) that showed that officials were anticipating two more rate hikes this year.
By Andrew Moran
