Federal Reserve officials, in their recent meeting, raised eyebrows over the pace of inflation. The two-day session in July led to a quarter-point rate hike, pushing the key federal funds rate to its highest in over two decades at a 5.25%-5% range. While the consensus viewed inflation as alarmingly high, there were signs suggesting it might be easing off. However, the core of the concern was to strike a balance between curbing inflation and ensuring economic stability. The majority backed the rate hike, but dissenters felt the committee could pause and observe the ripple effects of prior hikes on the economy. Nevertheless, more rate hikes could be necessary going forward.
While the rate hikes aim to temper the economy, they haven’t dampened growth. Despite concerns over inflation veering from the 2% target, data highlighted progress with the consumer price index at a 3.2% 12-month rate in July. The 1970s saw a premature rollback in rate hikes during inflation, a misstep the officials are keen to avoid. In 2023, GDP has maintained a robust performance, averaging above 2% in the first half, and is projected to surge by 5.8% in Q3. Employment dynamics look promising, with unemployment rates matching historic lows and job vacancies still outnumbering available workers.
