Federal Reserve Interest Rate Boosts and Its Effect

The Federal Reserve boosted the interest rate by 0.25 percentage points on Wednesday, signaling that it may delay further hikes to give officials time to assess the influence of recent bank failures and await and monitor the resolution of the US debt political impasse inflation.

A unanimous decision raised the US Federal Reserve’s interest rate from 5% to 5.25%, marking the tenth consecutive hike by the Fed since March 2022.

However, the accompanying policy statement dropped the language, saying that the Federal Open Market Committee, responsible for setting interest rates, “still believes that further policy tightening may be appropriate to achieve sufficient policy tightening to return inflation to 2 percent over time.”

Instead, the Fed issued a more specific statement, recalling the language it used when it stopped rate hikes in 2006, saying that “to determine how much further monetary tightening might be appropriate,” officials are investigating how inflation, economy, and financial market will behave over the coming weeks and months.

In a news conference following the announcement, Fed Chairman Jerome Powell told the Central Bank still sees inflation as too high and remains concerned about severe price pressures.

Effect on The Economy

The Fed interest rate was now about the same as on the eve of the destabilizing financial crisis 16 years ago and at a level that most Fed officials thought in March would be “pretty tight” for inflation to return to goal. It is currently still more than double that level.

Economic growth remains subdued, but “recent developments are likely to tighten credit conditions for businesses and households and weigh on employment, economic activity, and inflation,” the Fed reported.