Fed raises interest rates to 22-year high

The US Federal Reserve (Fed), which paused interest rate hikes last month, raised the policy rate by 25 basis points in line with expectations at its July meeting. Thus, interest rates were increased for the 11th time since 2022 and reached their highest level in 22 years. The decision text left the door open to further interest rate hikes and stated that the extent of additional tightening to reduce inflation would be evaluated. The Fed increased the policy rate by 25 basis points to 5.25-5.50 percent as part of the fight against inflation. Thus, interest rates reached their highest level since January 2001. The decision was made unanimously. Economists who participated in a Bloomberg survey also expected a 25 basis point increase. The decision text stated that the extent of additional tightening to reduce inflation would be evaluated. The statement said, “Future policy steps will depend on the impact of the tightening and economic and financial developments.” It was stated that inflation remained high and “Recent indicators indicate that economic activity is expanding at a moderate pace”. It was reiterated that the US banking system is solid and resilient, while it was stated that credit tightening could suppress economic activity. It was stated that the pace of balance sheet contraction would continue as announced. Authorities reiterated their determination to return inflation to the 2 percent target. Statements from Powell Speaking at the press conference following the interest rate decision, Fed Chairman Jerome Powell gave the message that they could tighten further if necessary in the upcoming period. Stating that inflation was still above the target, Powell said, “Inflation has become more moderate, but we have a long way to go to reach the 2 percent target.” Powell stated that they were determined to reduce inflation and that future interest rate hikes would depend on data. Stating that the latest inflation data was better than expected but that they did not act based on a single data, the Chairman said, “We may increase interest rates or skip them depending on the data that comes in September.” Powell said that the policy they implemented was not restrictive enough for a long time. He stated that decisions would continue to be made from meeting to meeting. Powell, who stated that he did not expect a rate cut this year, said that some Fed members predicted a rate cut next year. Powell added that they no longer expected a recession. He had passed in June. The Fed had unanimously decided to keep interest rates unchanged at its June meeting, with signs of a slowdown in inflation after the tightening that had been going on since March 2022. Chairman Jerome Powell had given the message that officials saw further rate hikes as appropriate in future meetings. The latest June inflation in the US had fallen to its lowest level in 2 years at 3 percent annually. Inflation peaked at 9.1 percent in June last year.