Federal Reserve Raises Interest Rates to 5.25% and 5.50% Amidst Strong U.S. Growth and Low Inflation
On Wednesday, the Federal Reserve raised interest rates by 25 basis points to 5.25% and 5.50%. In addition, they announced that they will continue to hike if necessary. Fed Chairman Jerome Powell refuted the idea that the central bank is on track to tighten policy in the following meetings, saying that decisions are made on a meeting-by-meeting basis. With Wednesday's increase, the rate is at its highest level in 22 years. The Fed upgraded its assessment of U.S. growth from mild to moderate and lowered its recession forecast. Powell also said that rate cuts are unlikely in the coming year and highlighted the low probability of inflation returning to its 2% target until 2025. On this basis, markets are pricing in about a 40% chance of additional increases and highlight that this is likely to be the last one. On another note, preliminary US GDP data showed that the economy grew by 2.4% in the second quarter. This growth considerably exceeded expectations of 1.8% and was up from the first quarter in which the economy had grown by 2%. This increase was primarily due to consumer spending and non-residential investment.