Federal Reserve MeetingFed Raises Rates Again
Policymakers increased interest rates by a quarter point, to the highest level in 22 years. They also left the door open for further increases, as they continue the fight against rapid inflation.
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20
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Federal Reserve officials raised interest rates to their highest level in 22 years, continuing their 16-month campaign to wrestle inflation lower by cooling the American economy.
Officials pushed rates to a range of 5.25 to 5.5 percent, their highest level since 2001, while leaving the door open to further rate increases in the statement announcing their unanimous decision. Jerome H. Powell, the Fed chair, explained the move in a news conference, but offered few hints about how the central bank was thinking about its next steps.
Here’s what to know about the Fed’s latest decision:
Fed policymakers began to raise rates from near-zero in March 2022 and pushed them up rapidly last year before adjusting them more slowly in 2023, even pausing in June. Because officials think rates are now high enough to weigh on the economy, they have been moving more gradually to give themselves time to see how growth, the job market and inflation data are responding to the shift in policy. “We’ve covered a lot of ground, and the full effects of our tightening have yet to be felt,” Mr. Powell said during his post-meeting news conference.
Economists have recently become increasingly hopeful that the Fed might be able to slow inflation without causing an outright economic downturn, clinching what is often called a soft landing. Inflation has finally begun to subside notably at a time when hiring still remains strong and the unemployment rate is hovering at very low levels. In a nod to that resilience, officials noted on Wednesday that the economy was expanding at a “moderate” pace, an upgrade from “modest” in their June statement. Mr. Powell also noted that the Fed’s staff economists no longer expected a recession later this year. They had previously been predicting one.
Although the slowdown in inflation so far is welcome news, it has been driven primarily not by their policy changes, but by a slow return to normal after years of pandemic-related disruptions across a range of products, from cars to couches. Mr. Powell said that the process of getting inflation back to the Fed’s 2 percent goal has “a long way to go.”
“Inflation repeatedly has proved stronger than we and other forecasters have expected — and at some point that may change,” Mr. Powell said. “We have to be ready to follow the data and given how far we’ve come, we can afford to be a little patient as well as resolute as we let this unfold.”
The Fed projected last month that it would make two more rate increases this year — the one it ushered in on Wednesday, and then a follow-up at some point in the future. Investors and some economists have speculated that officials may hold off on that second rate move in light of the recent slowdown in inflation. “We haven’t made any decisions about any future meetings,” Mr. Powell said. He avoided explaining in any detail what might prompt the Fed to either lift rates or hold them steady, noting that the Fed has time and a substantial amount of data coming before it has to decide on policy again. Policymakers won’t make another decision on interest rates until Sept. 20.
![Jeanna Smialek](https://static01.nyt.com/images/2020/07/03/reader-center/author-jeanna-smialek/author-jeanna-smialek-thumbLarge-v2.png?quality=75&auto=webp)
Key takeaways from the Fed meeting today and the news conference with Jerome Powell, the Fed chair:
• The Fed raised interest rates by a quarter point, as expected.
• Officials left the door open to future rate moves.
• But policymakers were careful not to commit to a pace, extent or plan.
• "We haven’t made any decisions about any future meetings,” Powell said, bluntly and plainly.
• Powell said he still expects the labor market to slow, even though it has been great news that it has been resilient to the Fed's rate increases so far.
• Powell also noted that the Fed's staff economists, an influential bunch, no longer expect a recession later this year. They had previously been predicting one.
• In all, the July meeting showed a Fed that is trying to keep its options open at an uncertain juncture in the American economy: Inflation is finally cooling, but it is too soon to declare victory and officials want to see more proof before they back away from rate increases.
![Jeanna Smialek](https://static01.nyt.com/images/2020/07/03/reader-center/author-jeanna-smialek/author-jeanna-smialek-thumbLarge-v2.png?quality=75&auto=webp)
And that’s a wrap. Powell is done with his news conference, which was an exercise in keeping the Fed’s options wide open.
transcript
Federal Reserve Raises Interest Rates to Highest Level in Two Decades
Jerome H. Powell, the Fed chair, announced that the central bank raised interest rates to a range of 5.25 to 5.5 percent, the highest level since 2001.
The Fed’s monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people. My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher cost of essentials like food, housing and transportation. We’re highly attentive to the risks that high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2 percent objective. At today’s meeting, the committee raised the target range for the federal funds rate by a quarter percentage point, bringing the target range to 5-and-a-quarter to 5-and-a-half percent. We are also continuing the process of significantly reducing our securities holdings.
![Video player loading](https://static01.nyt.com/images/2023/07/26/video/26vid-powell-fed-COVER/26vid-powell-fed-COVER-videoSixteenByNine1050.png)
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Powell says the Fed is concerned about global food security and is watching food prices following Russia’s termination of the Black Sea initiative that was allowing Ukrainian grain to be exported. He does not think that it will impact Fed policy for now.
![Alan Rappeport](https://static01.nyt.com/images/2018/06/12/multimedia/author-alan-rappeport/author-alan-rappeport-thumbLarge-v2.png?quality=75&auto=webp)
Powell says “I think we’ve got a ways to go” to get back to balance in the housing market. He notes that homeowners with low interest rates are reluctant to move, constraining housing supply.
![Talmon Joseph Smith](https://static01.nyt.com/images/2020/07/22/opinion/Talmon-Smith/Talmon-Smith-thumbLarge-v5.png?quality=75&auto=webp)
It's also a good time to remember: many large businesses (and homeowners) have steady, low-cost, fixed debt payments locked in, but many smaller firms, subject to variable rate bank loans, have seen the cost of their interest payments spike a great deal.
![Emily Flitter](https://static01.nyt.com/images/2019/06/19/reader-center/author-emily-flitter/author-emily-flitter-thumbLarge.png?quality=75&auto=webp)
Powell says midsize banks may have reined in credit availability more than banks of other sizes recently. It’s hard to say for sure, but the American Bankers Association’s in-house analysis of midsize banks’ lending grew modestly overall from April through June.
![Emily Flitter](https://static01.nyt.com/images/2019/06/19/reader-center/author-emily-flitter/author-emily-flitter-thumbLarge.png?quality=75&auto=webp)
One way midsize banks are definitely cutting credit: They’re letting loan-only corporate customers know that their credit lines aren’t going to be renewed. They’re turning their focus to customers that do multiple forms of business with them.
![Deborah B. Solomon](https://static01.nyt.com/images/2021/05/07/reader-center/author-deborah-solomon/author-deborah-solomon-thumbLarge-v3.png?quality=75&auto=webp)
While today’s vote was unanimous, Powell notes that there “was a range of views” among the participants. It will be interesting to see the Fed’s minutes three weeks from now, when we’ll get more insight into what the various officials were thinking about today’s rate move.
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“Ultimately over time we get where we need to go,” said Powell, in response to a question about the rally in stock markets working against efforts to restrict the economy and lower inflation. Powell said that these so-called financial conditions can become dislocated from the Fed’s policy but that overtime they tend to come back together. Reading between the lines, that could spell trouble for the stock market.
![Joe Rennison](https://static01.nyt.com/images/2022/07/27/reader-center/author-joe-rennison/author-joe-rennison-thumbLarge.png?quality=75&auto=webp)
Powell’s comments appeared to have an impact on the market. The S&P 500 is now roughly 0.4 percent lower for the day, having been as much as 0.3 percent higher for the day when Powell first started talking.
![Joe Rennison](https://static01.nyt.com/images/2022/07/27/reader-center/author-joe-rennison/author-joe-rennison-thumbLarge.png?quality=75&auto=webp)
Stocks across all three major indices -- the S&P 500, the Nasdaq Composite, and the Dow -- have all given up their earlier gains and have slipped back into negative territory for the day, as Powell urged caution over the economic outlook.
S&P 500
![Ben Casselman](https://static01.nyt.com/images/2018/11/09/multimedia/author-ben-casselman/author-ben-casselman-thumbLarge.png?quality=75&auto=webp)
The bank failures last spring didn’t set off the financial crisis that some people feared. But some economists think the turmoil could still have an economic impact, as smaller banks pull back lending to businesses. That could lead to reduced hiring and investment in the months ahead.
![Lydia DePillis](https://static01.nyt.com/images/2022/10/03/reader-center/author-lydia-depillis/author-lydia-depillis-thumbLarge-v2.png?quality=75&auto=webp)
Interesting that Powell said he now doesn’t see the fallout from the banking crisis as distinct from a general tightening in credit conditions. “I can’t separate those anymore,” as he put it.
![Emily Flitter](https://static01.nyt.com/images/2019/06/19/reader-center/author-emily-flitter/author-emily-flitter-thumbLarge.png?quality=75&auto=webp)
Yesterday, PacWest, one of the most troubled midsize banks left standing, was bought by another California bank. “Things have settled down,” Powell says in response to a question about whether yesterday’s merger shows there’s more trouble in the sector. “Of course we’re still watching the situation carefully.”
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“I wouldn't use the term 'optimism’ about this yet,” Powell says of the economy’s trajectory.
![Lydia DePillis](https://static01.nyt.com/images/2022/10/03/reader-center/author-lydia-depillis/author-lydia-depillis-thumbLarge-v2.png?quality=75&auto=webp)
Chair Powell mentioned the SLOOS, or the Senior Loan Officer Opinion Survey on Bank Lending, which is expected to show that it’s been harder to get a loan when it's released next week. We already know, via the New York Fed’s survey of consumer credit access, that applications for loans have been sinking and rejection rates have been rising.
![Jeanna Smialek](https://static01.nyt.com/images/2020/07/03/reader-center/author-jeanna-smialek/author-jeanna-smialek-thumbLarge-v2.png?quality=75&auto=webp)
Woah, this is news: Powell says that the Fed’s very-influential staff economists are no longer forecasting a recession. They had been for the last several meetings.
![Ben Casselman](https://static01.nyt.com/images/2018/11/09/multimedia/author-ben-casselman/author-ben-casselman-thumbLarge.png?quality=75&auto=webp)
If you want to get a sense of how forthcoming Powell is being on the Fed’s future plans, this quote gives you a sense: “We’ll be comfortable cutting rates when we’re comfortable cutting rates.”
![Joe Rennison](https://static01.nyt.com/images/2022/07/27/reader-center/author-joe-rennison/author-joe-rennison-thumbLarge.png?quality=75&auto=webp)
Investors have a higher expectation of rate cuts coming sooner rather than later, betting on two quarter-point rate cuts in the first half of next year.
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The Dow Jones Industrial Average, a narrow index of just 30 economically sensitive stocks, has rallied back from earlier losses to trade 0.3 percent higher for the day. If that gain holds until the end of the day it would mark the longest streak of daily gains for the index since the 1980s.
![Ben Casselman](https://static01.nyt.com/images/2018/11/09/multimedia/author-ben-casselman/author-ben-casselman-thumbLarge.png?quality=75&auto=webp)
Powell says that monetary policy is “restrictive,” meaning that interest rates are high enough to slow down economic growth. One interesting effect of cooling inflation is that it will tend to make Fed policy more restrictive, even without further rate increases. That’s because what matters are inflation-adjusted (or “real”) interest rates. As inflation falls, real rates will move higher, putting a further brake on growth.
![Ben Casselman](https://static01.nyt.com/images/2018/11/09/multimedia/author-ben-casselman/author-ben-casselman-thumbLarge.png?quality=75&auto=webp)
Powell is working very hard here to convince people that the committee hasn’t made a decision on what to do in September. It’ll be interesting to see how Fed watchers interpret that.
![Joe Rennison](https://static01.nyt.com/images/2022/07/27/reader-center/author-joe-rennison/author-joe-rennison-thumbLarge.png?quality=75&auto=webp)
Much can change over the next two months but as things stand, investors are placing a roughly 20 percent chance on a quarter-point rate increase in September, according to CME’s Fedwatch tool.
![Joe Rennison](https://static01.nyt.com/images/2022/07/27/reader-center/author-joe-rennison/author-joe-rennison-thumbLarge.png?quality=75&auto=webp)
It can be a fools errand to read too much into financial markets’ immediate moves on days like today. At the moment, stocks have ticked higher and the dollar has nudged lower, in a positive reception to Powell’s comments. But expectations for a further quarter point interest rate increase later this year have nudged upward, which would typically be a more worrying sign for the stock market.
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Powell notes that “core” inflation, which excludes volatile food and fuel prices, remains elevated, even as overall inflation has fallen substantially. That’s part of why the Fed remains focused on fighting inflation.
![Ben Casselman](https://static01.nyt.com/images/2018/11/09/multimedia/author-ben-casselman/author-ben-casselman-thumbLarge.png?quality=75&auto=webp)
But Powell doesn’t dismiss the decline in headline inflation entirely. As consumers experience smaller overall price increases, they may become less worried about inflation, which could make it easier for the Fed to bring inflation back under control.
![Lydia DePillis](https://static01.nyt.com/images/2022/10/03/reader-center/author-lydia-depillis/author-lydia-depillis-thumbLarge-v2.png?quality=75&auto=webp)
This came in response to a question about how much economic harm is necessary to get from 3 percent inflation down to 2 percent? Experts are starting to call this the “last mile,” noting that it could be the most difficult, and wondering whether the tradeoffs change once the worst of inflation has passed.
![Emily Flitter](https://static01.nyt.com/images/2019/06/19/reader-center/author-emily-flitter/author-emily-flitter-thumbLarge.png?quality=75&auto=webp)
Banks, anyone? The latest sign that the crisis of confidence in midsize U.S. banks has waned is that it has not yet come up at this Fed news conference.
![Jeanna Smialek](https://static01.nyt.com/images/2020/07/03/reader-center/author-jeanna-smialek/author-jeanna-smialek-thumbLarge-v2.png?quality=75&auto=webp)
Powell calls it a “real blessing” that the Fed has managed to raise rates so much without unemployment popping. He says a softening in labor conditions is still the likely outcome, though, and “the worst outcome” would be to “not deal with inflation.”
![Jeanna Smialek](https://static01.nyt.com/images/2020/07/03/reader-center/author-jeanna-smialek/author-jeanna-smialek-thumbLarge-v2.png?quality=75&auto=webp)
“Is the overall signal one that we need to do more, that we need to tighten further?” Powell says in response to a question. The upshot here is that the September meeting is clearly live, but officials are pretty carefully keeping their options open.
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SKIP ADVERTISEMENTInvestors and economists have become optimistic that the Federal Reserve might successfully slow inflation without plunging the economy into recession, but many are still eyeing a risk that threatens to derail the effort: a tower of dicey-looking corporate debt.
Companies loaded up on cheap debt during an era of super-low borrowing costs to help finance their operations. The Fed has since lifted interest rates and is expected to nudge them up further at its meeting on Wednesday.
The fear is that as debt comes due and businesses still in need of cash are forced to renew their financing at much higher interest rates, bankruptcies and defaults could accelerate. That risk is especially pronounced if the Fed keeps borrowing costs higher for longer — a possibility investors have slowly come to expect.