US Fed Rate hike takes interest rates to highest level in more than 22 years

US Fed Rate hike takes interest rates to highest level in more than 22 years

Subject: Economy

Section: Monetary Policy

Context:: The Federal Reserve approves a much-anticipated interest rate hike that takes benchmark borrowing costs to their highest level in more than 22 years.

Key Points:

• Federal Open Market Committee (FOMC) raised its funds rate by a quarter percentage point to a target range of 5.25%-5.5%. The midpoint of that target range would be the highest level for the benchmark rate since early 2001.
• The Fed statement noted an upgrade of economic growth to “moderate” from “modest” at the June meeting despite expectations for at least a mild recession ahead. The statement again described inflation as “elevated” and job gains as “robust.”
• Fed further noted that it does not expect the US central bank to lower interest rates this year and still expects the economy will come back into better balance without major damage.
• The fed funds rate sets what banks charge each other for overnight lending. But it feeds through to many forms of consumer debt such as mortgages, credit cards, and auto and personal loans.
• The Fed has not been this aggressive with rate hikes since the early 1980s, when it also was battling extraordinarily high inflation and a sputtering economy.
• Along with the rate hike, the committee indicated that it will continue to cut the bond holdings on its balance sheet, which peaked at $9 trillion before the Fed began its quantitative tightening efforts. This is part of a measure to reduce liquidity in the market.
• The balance sheet is now at $8.32 trillion as the Fed has allowed up to $95 billion a month in maturing bond proceeds to expire and not renew.