The Federal Reserve, in a much-awaited move, gave a nod to an interest rate hike that brings benchmark borrowing costs to a new target range of 5.25%-5.5%—a rate not witnessed since early 2001. Although market participants have been on the lookout for signals indicating a pause in the rate hikes to assess their impact on the economy, the Fed has only offered vague guidance on its future course of action. A consensus among all voting committee members led to the approval of this hike.
This interest rate rise is the 11th instance of such a move since the tightening process commenced in March 2022. Meanwhile, the Fed’s statement continues to portray the economic growth as “moderate” and job gains as “robust” despite looming forecasts of a mild recession. Consumer optimism regarding inflation seems to be improving, but despite the recent encouraging news, the Consumer Price Index (CPI) is still running well above the Fed’s 2% target. The economy appears to be showing resilience with respect to GDP growth and employment, even in the face of the rate hikes. The Fed committee, in addition to the rate increase, also indicated that it would continue to reduce the bond holdings on its balance sheet.
