Fed Sees More Rate Hikes Ahead As Inflation Battle Continues, But Pace Of Policy Could Slow

Zinger Key Points
  • The Federal Reserve has signaled that more rate hikes are coming, but the pace could slow.
  • Last week, the headline CPI number showed that inflation may have peaked. Minutes are from the end of July.

The SPDR S&P 500 SPY spiked higher Wednesday afternoon after Fed minutes showed that officials agreed to keep hiking rates enough to cool down the economy in their meeting last month. Furthermore, the central bank officials agreed they will likely need to maintain higher rates until inflation shows clear signs of a slowdown.

What To Know: The Federal Reserve raised its target fed funds rate by 0.75% in July, following a 0.75% rate hike in June. The two consecutive 0.75% rate hikes represent the most aggressive rate increases since 1994. Still, the Fed is fighting the highest inflation numbers in more than 40 years.

Several officials have indicated that they would support a 0.5% hike in September, but minutes from last month's meeting show that officials are aware of the potential to raise borrowing costs more than necessary. 

"Participants concurred that the pace of policy rate increases and the extent of future policy tightening would depend on the implications of incoming information for the economic outlook and risks to the outlook. Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation," the July Fed minutes said.

Still once rates are raised to sufficient levels, the Fed noted that it will likely need to keep rates high until it's clear that inflation is trending lower. 

"Some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent," the minutes said. 

The meeting was held at the end of July, two weeks before the most recent CPI data flashed a potential sign that inflation may have peaked.

The headline CPI rose 8.5% in July, which was down from a 9.1% reading in June and came in below average economist estimates of 8.7%.  June marked the highest CPI inflation number since 1981. 

See Also: New Federal Reserve Guidelines Could Let Traditional Banks Perform Crypto Functions

SPY Price Action: SPDR S&P 500 has a 52-week high of $479.98 and a 52-week low of $362.17.

The SPY was down 0.64% at $426.96 Wednesday afternoon, according to Benzinga Pro.

Photo: Rafael Saldaña from Flickr.

Market News and Data brought to you by Benzinga APIs
Posted In: NewsBroad U.S. Equity ETFsEcon #sTop StoriesFederal ReserveETFsInflationInterest Rates
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!