U.S. central bank keeps inflation in crosshairs with fifth consecutive increase for the year
The Federal Reserve fulfilled market expectations today as it hiked interest rates by 75 basis points.
The U.S. central bank’s latest move comes a week after the U.S. Bureau of Labour Statistics announced August headline inflation at 8.3% – lower than the 8.5%% annual print in July, but still hotter than the 8% consensus held by observers.
The central bank has hiked its benchmark rate five times this year, raising it to 3.25 from 0.25% at the start of 2022.
In a speech at last month’s Jackson Hole conference, Federal Reserve Chair Jerome Powell stressed that even as the U.S. economy showed clear signs of slowing from the historically high pace of 2021, the central bank would need to “keep at it until we are confident the job [of containing inflation] is done.”
Full Federal Reserve statement:
“Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
“Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”