Fed Raises Interest Rates To 5.5%, The Highest Since Early 2001

The Federal Reserve raised the federal funds rate by 0.25% to 5.25%-5.5% as widely anticipated Wednesday, pushing borrowing costs to their highest level since February 2001.

This move marks a resumption of rate hikes after a brief pause in June, bringing the cumulative increase to 5.25 percentage points since the start of the tightening cycle in March 2022.

Chart: US Interest Rates Hit 5.5%, Highest Since February 2001

Key Takeaways From July FOMC Statement

The July Federal Open Market Committee (FOMC) statement pointed to a continued expansion in economic activity, the resilience of the U.S. banking system and robust gains in the job market as factors underpinning the rate decision.

Even though market expectations leaned toward the Fed ending its rate-hiking cycle after the July meeting, the central bank left the door open for future increases and did not commit to any specific course of action, instead basing its future decision on upcoming economic data.

The committee said it will consider the cumulative tightening of monetary policy, the lags by which monetary policy affects economic activity and inflation and economic and financial developments when deciding the extent of additional policy actions needed to return inflation to target.

The statement made no mention of recent improvements in inflation, with the consumer price index falling to 3% year-on-year in June, the lowest level since March 2021. The Fed reaffirmed its commitment to returning inflation to its 2% target.

Market Reactions Ahead Of Powell’s Remarks

Stocks were volatile after the FOMC statement was released and before Fed Chair Jerome Powell‘s press conference.

The S&P 500 Index, as tracked by the SPDR S&P 500 ETF Trust SPY, ticked marginally higher before trimming gains. Large-cap tech stocks in the Nasdaq 100 Index, as monitored by the Invesco QQQ Trust QQQ, mirrored the move.

The dollar slightly eased versus peers, with the U.S. dollar Index falling 0.15%.

Gold, as closely tracked by the SPDR Gold Trust GLD, rose above $1,970/oz.

Investors now anxiously await Powell’s press conference, due at 2:30 p.m. ET, to glean more information about the Federal Reserve’s stance on additional rate hikes in the remaining 2023 meetings.