US FED Hikes Interest Rate for Tenth Time in a Row

The US Federal Reserve (US FED) has hiked interest rates for the tenth time in a row, bringing the key lending rate to its highest level since 2007. However, the US FED signalled it could pause further rate hikes, as inflation eases and turmoil continues to spread across the American banking sector. 

US FED Chairman Jerome Powell-led Federal Open Market Committee (FOMC) announced a hike of 25 basis points in interest rates as expected. Economists had widely expected the FOMC to decide on an increase of 25 bps in Fed funds range — the benchmark US interest rate — and that’s exactly what happened. This unanimous decision of the FOMC takes the fed funds rate to a target range of 5% to 5.25% — the highest since August 2007.

The FOMC policy meeting on Wednesday came at a time when central banks around the world have been struggling to balance red-hot inflation with economic growth, investors are looking for any probable signs of stress in the financial sector amid fears of recession and the US government is starting at a fast-approaching debt ceiling.

Official Statement

In a statement after the meeting, the FOMC said that economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.

The US banking system is sound and resilient and tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain and the FOMC remains highly attentive to inflation risks.

“The FOMC seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate from 5% to 5.25%,” the statement said.

The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the Committee will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2% objective, the FOMC reiterated in its statement.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.

“The Committee’s assessments will consider a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” the statement added.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.