The Federal Reserve on Wednesday raised its benchmark interest rate by a quarter percentage point and gave little indication it is nearing the end of this hiking cycle.
Aligning with market expectations, the rate-setting Federal Open Market Committee boosted the federal funds rate by 0.25 percentage point. That takes it to a target range of 4.5%-4.75%, the highest since October 2007.
The move marked the eighth increase in a process that began in March 2022. By itself, the funds rate sets what banks charge each other for overnight borrowing, but it also spills through to many consumer debt products.
The Fed is targeting the hikes to bring down inflation that, despite recent signs of slowing, is still running near its highest level since the early 1980s.
The post-meeting statement noted that inflation “has eased somewhat but remains elevated,” a tweak on previous language.
“Inflation data received over the past three months show a welcome reduction in the monthly pace of increases,” Fed Chairman Jerome Powell said in his post-meeting news conference. “And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.”
Markets, however, were looking to this week’s meeting for signs that the Fed would be ending the rate increases soon. But the statement provided no such signals. At first, stocks fell in the wake of the announcement, with the Dow Jones Industrial Average tumbling more than 300 points.
However, the market rebounded during Powell’s press conference, after he acknowledged that “the disinflationary process” had started. Major averages ultimately turned positive as market commentary focused on Powell’s somewhat optimistic comments on progress against inflation.
“We can now say I think for the first time that the disinflationary process has started,” Powell said, while also noting that it would be “very premature to declare victory or to think we really got this.”
The Fed’s statement included language noting that the FOMC still sees the need for “ongoing increases in the target range.” Market participants had been hoping for some softening of the phrase, but the statement, approved unanimously, kept it intact.
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