US: Second consecutive rate hike of 75 basis points by the Federal Reserve

The Federal Reserve hiked its interest rates by another 75 basis points today, confirming analysts’ estimates, with the central bank taking another decisive step towards bringing inflation back closer to its 2% target.

Today’s decision to increase interest rates by 75 bp. at 2.25% to 2.5% it was unanimous.

In June, the Fed surprised analysts by raising interest rates by 75 basis points. in the most aggressive increase since 1994.

It is noted that since March – when monetary policy tightening began with a mild increase of 25 basis points – the Fed has raised US interest rates by a total of 225 basis points.

In the statement released today, the bank’s Monetary Policy Committee underlines the “strong commitment” to returning inflation to the 2% target, while stressing that it pays “particular attention to inflationary risks.” At the same time, the Commission reiterates that it expects “new interest rate increases” to be needed, while noting that it will adjust its policy if risks arise that could prevent the achievement of its objectives.

In its analysis of the economy, the Fed notes that “the latest data on spending and output appear weaker”, noting, however, that developments in the labor market remain “strong in recent months and unemployment remains low”.

The latest hike moves US interest rates closer to central bank officials’ estimate of a “neutral” level, meaning a level that will neither boost nor slow the economy.

Investors are now waiting to see if the Fed will slow the pace of rate hikes at its next meeting in September or if the rally in inflation will force it to continue aggressive hikes. The consumer price index rose 9.1 percent in June from a year earlier, beating analysts’ estimates and climbing to a new 40-year high.

The aggressive tightening of monetary policy, however, has raised serious concerns about the risk of derailing economic growth, with several analysts even warning of the risk of recession.