The Federal Reserve continues to be aggressive in attempts to flatten the surging inflation. The Federal Open Market Committee unanimously voted on Wednesday to increase the interest rates by another 0.75%, matching the June hike. Both are tied for the largest single rate hike since 1994.
In a policy announcement released after Wednesday’s meeting, the Fed said that the U.S. economy has softened in recent weeks but that the level is still not enough to justify lower interest rate hikes.
“Job gains have been robust in recent months, and the unemployment rate has remained low,” said the announcement. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
The latest increase has brought the short-term borrowing rates in the range of 2.25% -2.50%, compared to the 1.5% – 1.75% range in June. The Fed previously predicted that the benchmark interest rate needs to reach 3.8% in 2023 if inflation is to slow down. This means that more hikes will follow, although their timing will depend on how the economy reacts in the following weeks.
The markets expect the Fed’s interest rates policy to go in a different direction next summer, although the committee itself projects that there will be no cuts at least until 2024.