US Fed Meeting: At 5.25%-5.5%, FOMC lifts rates to 22-yr high; more hikes expected to tackle above-target inflation

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The FOMC next meets on September 19-20 and subsequently on October 31-November 1. Policymakers have set the tone fot further hikes in interest rates throughout the year after July's meeting outcome.

Powell said in the press conference that he 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.

"We’ll be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year," Powell said at the press conference following the Fed's policy meeting.

“My base case is we’ll be able to achieve inflation moving back down to our target without the kind of really significant downturn that results in high levels of job losses," Powell said, but said that path is “a long way from assured.”

US stocks were fairly subdued following the FOMC decision. The Dow Jones Industrial Average rose 26.08 points, or 0.07 per cent, to 35,464.15, the S&P 500 lost 8.5 points, or 0.19 per cent, at 4,558.96 and the Nasdaq Composite dropped 45.25 points, or 0.32 per cent, to 14,099.31.
On the other hand, US two-year treasury yields were higher and hit a session high of 4.92 per cent.  

Oil prices fell about one per cent on Wednesday, after data showed US crude inventories fell less than expected and the Federal Reserve raised interest rates by a quarter of a percentage point.

Brent crude futures closed down 72 cents, or 0.9 per cent, at $82.92 a barrel, while US West Texas Intermediate (WTI) crude settled at $78.78, down 85 cents, or 1.1 per cent. 

Both benchmarks fell by more than $1 earlier in the session, after hitting three-month highs on Tuesday. Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.

Fed Chair Powell added that in an uncertain outlook for monetary policy, the Fed still will have to keep rates up for an extended period, and is limited in how much it can say about future rate decisions.

“We need to stay on task and we think we’ll need to hold policy at restrictive levels for some time, and we need to be prepared to raise rates further if we think that’s appropriate," Powell said at his press conference.

But he added "it’s not an environment where we want to provide a lot of forward guidance" about future rate actions, and whether the Fed hikes again will be determined by where the data stands at the time of future policy gatherings.

Fed Reserve Chairman Jerome Powell said at the press conference it's possible the central bank will follow its latest rate rise with another one at the policy meeting scheduled for September.

"It is certainly possible we would raise the funds rate at the September meeting if the data warranted, and I would also say it's possible that we would choose to hold steady at that meeting" if that's what the data called for, Powell said. 

He noted the Fed will be making decision on monetary policy on a meeting-by-meeting basis. Powell added that a wide range of data would be considered by the Fed as it deliberates on monetary policy.

“In determining the extent of additional policy firming that may be appropriate to return inflation to two per cent over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,'' said the Federal Reserve.

The rate-setting Federal Open Market Committee (FOMC) used similar language when it voted to hold rates steady in June, and the latest statement suggests that policymakers are mulling another pause at their next meeting in September.

However, the Fed also said it would assess a range of data points "in determining the extent of additional policy firming," which indicates they see more monetary tightening ahead. At the previous FOMC meeting in June, the median forecast involved two additional rate hikes this year.

"The (Federal Open Market) Committee will continue to assess additional information and its implications for monetary policy," the Fed said in language that was little changed from its June statement and left the central bank's policy options open as it searches for a stopping point to the current tightening cycle.

As it stated in June, the Fed said it would watch incoming data and study the impact of its rate hikes on the economy "in determining the extent of additional policy firming that may be appropriate" to reach its 2% inflation target.

At 5.25 per cent-5.50 per cent, the US Federal Reserve hiked interest rates to its highest level since 2001. The quarter percentage-point rise lifts the Fed's key lending rate to a range between 5.25 per cent and 5.5 per cent, the US central bank said in a statement, adding that it will "continue to assess additional information and its implications for monetary policy."

Shares of tech heavyweight Microsoft weighed on the market after falling 4.4 per cent. That was despite reporting stronger profit and revenue for the spring than analysts expected. Analysts said the company made comments that were perhaps intended to rein in huge expectations for upcoming growth from artificial intelligence. 

Another Big Tech behemoth, Alphabet, helped to limit the market’s losses. Alphabet rose 5.8 per cent after beating analysts’ expectations for profit and revenue by a wider margin than Microsoft.

Here is the Fed meeting schedule for this year:

July 25-26

September 19-20

October/November 31-1

December 12-13

The US central bank's Federal Open Market Committee will soon declare the outcome at the end of a two-day meeting on July 26. The decision will be announced at 11:30 pm India time, followed by a press conference by Fed Chair Jerome Powell at midnight. Here's how you can watch the press conference by the Fed Chair

Gold prices rose on Wednesday, helped by a pullback in the dollar and bond yields ahead of an expected rate-hike from the US Federal Reserve and comments from Chair Jerome Powell. Spot gold was up 0.4 per cent at $1,972.59 per ounce, while US gold futures gained 0.5 per cent to $1,973.70. The dollar index slipped 0.2 per cent against its rivals, making gold less expensive for other currency holders. US 10-year Treasury yields fell to 3.872 per cent.

Oil prices retreated from their three-month high peak and edged lower on July 26, after US crude inventories declined less than expected in the week and investors took to cautious trading ahead of the US Federal Reserve meeting outcome. 

-Investors had squared their positions ahead of the Fed rate decision, according to analysts. Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.

‘’Optimism inched back today in Indian markets after the last three trading days of consolidation ahead of the FOMC meeting. As the market’s ambiguity against the monetary policy is likely to reverse henceforth, going forward we are unlikely to see another Fed rate hike in 2023. This is because inflation has rapidly come down and is forecast to settle down further. However, the interest rate is expected to stay high in the short-term since the rigidity of core inflation remains above the long-term average,'' said Vinod Nair, Head of Research at Geojit Financial Services.

The S&P 500 and the Nasdaq edged lower on Wednesday as investors assessed mixed earnings from Microsoft and Alphabet ahead of a Federal Reserve rate hike that could push borrowing costs to their highest since the global financial crisis.

The Dow Jones Industrial Average was up 32.31 points, or 0.09 per cent, at 35,470.38, the S&P 500 was down 7.27 points, or 0.16 per cent, at 4,560.19, and the Nasdaq Composite was down 51.25 points, or 0.36 per cent, at 14,093.30.

In the past month, the Federal Reserve decided to put an end to its forceful strategy of increasing interest rates, which had been ongoing for ten consecutive rate hikes. This move was made to provide policymakers with a longer period to evaluate the well-being of the world's largest economy.

Federal Reserve is expected increase its benchmark policy rate by 0.25 percentage point, reaching a range of 5.25% to 5.5%, which will be the highest in 22 years. Investors will closely observe any indications as to whether this rate hike concludes the current cycle, and when policymakers might begin to shift their approach in the opposite direction.