The Federal Reserve raised interest rates by three-quarters of a percentage point to a target range of 2.25% to 2.5%, the Federal Open Market Committee announced today. The committee added that it anticipates that ongoing increases in the target range will be appropriate, with Fed Chairman Jerome Powell saying that another “unusually large” increase could come during the FOMC’s September meeting.
Today’s announcement marks the fourth time the Fed has raised rates this year. FOMC also announced it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. “Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low,” the statement said. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
The Fed said the war in Ukraine and related events are creating additional upward pressure on inflation and are weighing on global economic activity. During a news conference, Powell acknowledged that the rapid pace of inflation has come as a surprise and more economic surprises could be in store. The committee “will strive to avoid adding uncertainty in what is already an extraordinarily challenging and uncertain time.”
“We are highly attentive to inflation risks and determined to take the measures necessary to return inflation to our 2% longer-run goal,” Powell said. “This process is likely to involve a period of below-trend economic growth and some softening in labor market conditions. But such outcomes are likely necessary to restore price stability and to set the stage for achieving maximum employment and stable prices over the longer run.”