Fed Hikes Interest Rates by 0.75 Percentage Point

Brian Turner
27 Jul, 2022
New York City

The Federal Reserve lifted its key lending rate range by 75 basis points, second rate hike in a row. 

In a unanimous decision, policy makers agreed to lift the federal funds rate to 2.25% to 2.5% and held out for future rate hikes to warm off sky-high inflation. 

Policymakers in an accompanying statement set the hawkish tone for future rate hikes and highlighted the Fed's commitment in bringing the inflation down to the Fed's target rate of 2%. 

"The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run," The Fed's statement noted.  

Fed policymakers also guided future rate hikes as anticipated by financial markets. 

Fed Chairman Jerome Powell said at a press conference after the rate decision that he does not believe the U.S. is currently in a recession. 

Fed's action may appear aggressive but the policymakers are severely lagging the inflation. It may take several sustained rate increases and other measures to bring down the raging inflation forces. 

The Consumer Price Index has stayed above the Fed's target rate of 2% for 18 months in a row, and the Fed's action may do little to bring down rising food and fuel prices. 

Much of the inflationary forces are driven by the supply side factors that are less influenced by the Federal Reserve's decisions. 

Investors are worried that the Fed's aggressive moves may force the economy into a recession despite the strong labor market. 

Home prices are still rising despite the elevated mortgage rates and record high home prices. 

After the rate decision, the yield on 10-year Treasury notes declined to 2.76% and 2-year notes traded down to 2.98%.