26 July 2023
The Federal Open Market Committee (FOMC) of the Fed has raised its five key policy rates by 25 basis points, resulting in an upper limit of 5.5%, the highest level since January 2001. The hike was broadly anticipated following the June meeting when the Fed forecasted two additional rate increases for the year. This rise marks a 525 basis points increase over the last 16 months, the swiftest rate-hike cycle since 1980, aimed to combat severe inflation.
The policy rates revised are: the federal funds rate target (now between 5.25% and 5.5%), the interest on bank reserves (5.4%), the overnight Repo charges (5.5%), the interest on overnight Reverse Repos (5.3%), and the primary credit rate (5.5%).
Furthermore, the Fed has suggested the possibility of additional rate hikes this year. The same language was used in the June statement, indicating the potential for further tightening of monetary policy. The FOMC will consider the overall tightening of monetary policy, the delay in monetary policy effects on the economy and inflation, and other economic and financial developments.
The ongoing Quantitative Tightening (QT) continues at the usual pace, with a cap of $60 billion per month on Treasury roll-off and $35 billion on MBS roll-off.
Today’s meeting, being one of the four in-between sessions, did not release a Summary of Economic Projections (SEP), which includes the “dot plot”. In the June meeting, the median projection for the federal funds rate by the end of 2023 was raised to 5.625%, implying an upper target range limit of 5.75%.
The committee remains watchful of the banking crisis’ impact on inflation and the economy, repeating language from the May 3 statement that tighter credit conditions could impact economic activity, hiring, and inflation, though the extent of these effects is still uncertain.