UPDATE - US Fed hikes rates by 25 basis points to highest in 22 years

UPDATE - US Fed hikes rates by 25 basis points to highest in 22 years

Target range for federal funds rate raised to 5.25% - 5.5% -- highest since early 2001


By Ovunc Kutlu

ISTANBUL (AA) - The US Federal Reserve raised its benchmark interest rate Wednesday by 25 basis points, carrying it to the highest level in more than 22 years.

The Federal Open Market Committee (FOMC) unanimously decided to raise the target range for the federal funds rate to between 5.25% and 5.5% -- its highest since early 2001.

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

The Committee reiterated that the US banking system is "sound and resilient" amid a recent banking crisis.

"Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain," it added.

The central bank raised interest rates by a total of 425 points in seven hikes last year to fight record inflation that soared last June to its highest in more than 40 years.

It was followed by rate hikes of 25 basis points apiece Feb. 1, March 22 and May 3.

The Fed skipped a rate increase on June 6 to assess the implications of its monetary policy on the economy and inflation.

Annual consumer inflation in the US came in at 3% in June, marking its lowest in more than two years, easing sharply from 9.1% in June 2022.

Fed Chair Jerome Powell left the door open for another hike of 25 basis points this year.

"I would say it is certainly possible that we will raise funds again at the September meeting if the data warranted," he said in a post-meeting news conference. "I say it is possible that we would choose to hold steady and we are going to be making careful assessments meeting by meeting.”

Powell said June 22 that the Fed would move at a "careful pace" concerning increases to avoid a mistake in the overall economy, and reiterated that by saying the central bank will be examining "the totality" of the incoming macroeconomic data.

“The Committee will continue to assess additional information and its implications for monetary policy," the FOMC said in its latest statement.

Powell continued to warn about consumer and producer prices that remain high.

"The worst outcome for everyone would be not to deal with inflation now and not get it done now. Whatever the short-term social costs of getting inflation under control, the longer-term social costs of failing to do so are greater and the historical record is very clear on that," he said. "If you go through a period where inflation expectations are not anchored and inflation is volatile, it interferes with people’s lives and with economic activity. That’s the thing we really need to avoid.”

He dismissed, on the other hand, the possibility of a rate cut in 2023.

"We would be comfortable cutting rates when we are comfortable cutting rates, and that won’t be this year," he said.

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