Federal Reserve Raises Fed Funds Rate to A 5.25% to 5.50% Target

The Federal Reserve has raised the Fed Funds target rate to 5.25% to 5.50% after a much anticipated quarter point raise. This is the highest Fed target rate in 22 years.

The Federal Reserve had paused following its June meeting, but had telegraphed clearly that it was not finished with its moves to fight inflation.

The committee continues to see inflationary pressure ahead, and a long road to get it down to its long-term target of 2%. Policy needs to remain restrictive enough for long enough to be certain that inflation is under control.

The Fed’s statement says that it will continue to monitor the extent of additional policy firming that may be appropriate. Since the Fed is still focused on the extent of additional firming need – not whether any additional firming is needed – some analysts are inferring that there will be least an additional quarter point move coming in September or November.

In his press conference, Powell said that it is possible that he and the Fed will raise rates again in the September meeting, based on the eight weeks of data that will be coming between now and then. It is also possible that the data will indicate that such a move is not necessary.

Chair Jerome Powell and the Fed members remains concerned that additional firming will cause stress for financial institutions that become overexposed to interest rate risk, and exert downward pressure of economic activity.

Those risk, however, are overshadowed by the reality that continued erosion of purchasing power with inflation undermines confidence in the economy with its burdens falling disproportionately on the working and middle classes.