There was no debate that interest rates would rise. The question was whether by 75 or 100 basis points. In the end, all the members of the FOMC Monetary Committee unanimously agreed to raise by 75 basis points. They announced this at today’s press conference.
Inflation is still a concern and the US economy is weakening. In contrast, the Fed sees the US labor market as strong with low unemployment. But at the same time, we see a strong dollar, which many companies mention in their quarterly results as a problem that takes away from their profitability from foreign clients.
By raising interest rates, the Fed is trying to slow inflation, which is at its highest in four decades. In a statement, the Fed added that it plans to keep raising borrowing costs 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 prime rate is now at a level that most Fed officials believe has a neutral economic impact. This essentially means that the Fed has ended its efforts from the pandemic era when it supported household and business spending with cheap money.
The Fed wants 2% inflation back
On his Twitter account, wrote.
Watch Chair Powell's statement from the #FOMC press conference:
Intro clip: https://t.co/K2LiY6hWtM
Full video: https://t.co/J8NUrfGgVi
Press Conference materials: https://t.co/D39XU1uopE pic.twitter.com/X1KxuzdgiK
— Federal Reserve (@federalreserve) July 27, 2022
But the biggest priority is restoring price stability, Jerome H. Powell said.
“Restoring price stability is just something we got to do.”
The annual rate of consumer price inflation was 8.6% in May and accelerated further to 9.1% in June. However, stopping price increases will be a more difficult step, as this is not purely up to the Fed and the US. In today’s world of geopolitical uncertainty, a global energy and gas prices, and food shortages in some countries, it is affecting and will continue to affect US consumer prices in the future.
Read also: Weekly macro report – calm before the storm
Today’s statement did not give us much indication of what the Fed might be planning for the next meeting. We’ll see that with upcoming data on whether or not inflation is gradually slowing.
Post has no comment yet.