Market Alert: Federal Reserve Hikes Interest Rate by 25 bps, Now 5.25-5.5%

  • In a significant monetary policy shift, the Federal Reserve (Fed) has implemented a 25 basis points (bps) increase in its benchmark interest rate, setting it between 5.25% and 5.5%.
  • The Fed’s decision marks the third consecutive rate hike, placing the benchmark rate at its highest level since 2001, amid ongoing efforts to combat surging inflation.

In the latest move, the Federal Reserve (Fed) has raised its benchmark interest rate by 25 basis points Today, bringing it to a range of 5.25% to 5.5%. and placing the benchmark rate at its highest level since 2001, amid ongoing efforts to combat surging inflation.

As expected, economists foresaw the Fed’s decision to combat the current 40-year high inflation as the central bank’s goal is to carefully raise interest rates, striking a balance between slowing economic growth and avoiding a recession.

While this 25 bps increase is the smallest since 2015, some economists speculate that more substantial rate hikes might be necessary in the coming months to effectively tackle inflation.

Furthermore, the Fed Reserve Chairman Jerome Powell highlighted that it’s possible the central bank will follow its latest rate rise with another one at the policy meeting scheduled for September if that’s what the data calls for.

“It is certainly possible we would raise the funds rate at the September meeting if the data warranted, and I would also says it’s possible that we would choose to hold steady at that meeting”

He also noted that the Fed will be making decision on monetary policy on a meeting-by-meeting basis. 

As the impact of the rate hike extends throughout the economy. Businesses may face higher borrowing costs, leading to slower economic growth, while consumers could find borrowing more expensive, potentially resulting in reduced spending. Additionally, the stock market, which has been volatile in recent months, could experience further fluctuations due to this decision.

Overall, the Fed’s move to raise interest rates indicates its strong commitment to combating inflation. However, the decision’s implications for the economy remain uncertain, and the market’s response remains to be seen.

Alongside the rate hike, the Fed has released its updated economic projections. Notably, inflation is now expected to average 2.6% in 2023, down from the previous forecast of 3.7%, while economic growth is projected to slow to 1.7% in 2023, compared to the earlier estimate of 2.3%.

These updated projections show the Fed’s growing confidence in bringing inflation under control without triggering a recession. Nevertheless, the decision to raise interest rates serves as a reminder of the central bank’s willingness to take action to combat inflation, even if it entails some slowing of economic growth.

What is the 2023 Fed meeting schedule?

Fed meeting schedule for this year:

September 19-20, October/November 31-1, December 12-13

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