The Federal Reserve raised its target fed funds rate by 0.75% on Wednesday to a new range of between 2.25% and 2.5%, its second 0.75% rate hike in two months. The Fed said it will continue with its previously announced plan to let Treasury securities and agency debt and agency mortgage-backed securities roll off its balance sheet on a monthly basis.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed said in a statement.
The Fed reassured investors that job gains have been strong and the unemployment rate has declined, but noted spending and production rates have softened.
The statement comes after the Labor Department reported the U.S. economy added 372,000 jobs in June, beating economist estimates of 250,000 jobs. The unemployment rate remained steady at 3.6%, and hourly wages were up 5.1% from a year ago.
All 12 Fed members voted unanimously for the 0.75% hike.
The Consumer Price Index (CPI) was up 9.1% in June, the highest inflation reading since 1981. The bond market currently projects an 83.6% chance the fed funds rate will rise at least another 1% by the end of the year.
The SPDR S&P 500 ETF Trust SPY was higher by 1.3% on Wednesday following the announcement.
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