US Federal Reserve Raises Interest Rates for the 11th Time, Market Divided on Future Rate Hikes
On July 26, the US Federal Reserve Chairman Jerome Powell announced a 25 basis point interest rate hike, raising the target range of the federal funds rate to 5.25%-5.50%. This marks the 11th time the Fed has raised interest rates since starting the rate hike cycle last year.
In its post-meeting statement, the Federal Reserve highlighted the continued moderate growth of the US economy, strong employment growth, low unemployment rate, and concerns about inflation risks. The Fed aims to achieve full employment and inflation targets and has decided to raise interest rates to assess the impact of various economic indicators.
Chairman Powell emphasized his determination to reduce inflation, stating that there is still a long way to go to achieve the goal of reducing the inflation rate to 2%. However, recent data suggests a slowdown in inflation, with the US consumer price index rising by 3% year-on-year in June, the lowest level since March 2021.
Analysts have mixed views on the future path of interest rates. Some believe this rate hike could be the last in this round of rate hikes, while others expect the Fed to continue raising rates or maintain the current level. Goldman Sachs stated that any fresh signs of inflationary strength could extend the path for rate hikes.
The market shows a 42% probability of another interest rate hike in this monetary tightening cycle, with a 21.5% probability of a 25 basis point hike in September.
The US economy has shown resilience, with a 2% growth rate in the first quarter of this year. Economists believe that the US economy may achieve a “soft landing” by raising interest rates to curb inflation without causing a recession.
While the future path of interest rates remains uncertain, both the US and developed economies in Europe are grappling with inflation and slow economic growth. The European Central Bank is expected to maintain a hawkish stance due to upside risks to inflation.
It remains to be seen how the Federal Reserve will navigate the high interest rate situation without triggering a surge in unemployment. The market will closely monitor inflation data and future statements by the Federal Reserve for guidance on future rate hikes.