For the second consecutive month, Federal Reserve officials increased interest rates by 75 basis points, delivering the most aggressive tightening in more than a generation to combat rising inflation, but with the risk of dealing a serious hit to the economy.
Policy makers, facing the hottest cost pressures in 40 years, lifted the target for the federal funds rate on Wednesday to a range of 2.25% to 2.5%. That takes the cumulative June-July increase to 150 basis points — the steepest since the price-fighting era of Paul Volcker in the early 1980s.
The Federal Open Market Committee “is strongly committed to returning inflation to its 2% objective,” it said in a statement released in Washington, repeating previous language that it’s “highly attentive to inflation risks.” The FOMC reiterated it “anticipates that ongoing increases in the target range will be appropriate,” and that it would adjust policy if risks emerge that could impede attaining its goals.
US stocks remained higher after the decision. Ten-year Treasury yields and the dollar were lower.
The FOMC vote, which included two new members — Vice Chair for Supervision Michael Barr and Boston Fed President Susan Collins — was unanimous. Barr’s addition to the board earlier this month gave it a full complement of seven governors for the first time since 2013.
Chair Jerome Powell is holding a press conference in Washington to discuss the decision.
While Fed officials maintain that they can manage a so-called soft landing for the economy and avoid a steep downturn, a number of analysts say it will take a recession with mounting unemployment to significantly slow price gains.
The FOMC noted Wednesday that “recent indicators of spending and production have softened,” but also pointed out that job gains “have been robust in recent months, and the unemployment rate has remained low.”
With the most recent increase, rates are now close to what Fed policymakers consider neutral, or the point at which the economy is neither growing faster nor slower. Rate increases were anticipated by regulators to reach approximately 3.4 percent this year and 3.8 percent in 2023, according to forecasts from mid-June.