Federal Reserve Raises Interest Rates, Eyes Further Tightening
Treasuries regained some ground on Wednesday after falling in the previous sessions. Bond prices initially advanced but later moved back up following the Federal Reserve’s monetary policy decision. As a result, the yield on the benchmark ten-year note fell by 6.1 basis points to 3.851 percent.
The late-day recovery by treasuries came after the Fed announced its widely anticipated decision to resume raising interest rates after a brief pause last month. The central bank stated that it has chosen to increase the target range for the federal funds rate by 25 basis points to 5.25 to 5.50 percent. With this raise, the midpoint of the target range is now the highest it has been since early 2001.
The decision to hike rates was based on the Fed’s observations that inflation remains elevated, while the US economy continues to grow at a moderate pace with robust job gains in recent months. In a press conference following the meeting, Fed Chair Jerome Powell indicated that they may raise rates again in September or maintain the current stance, emphasizing that the central bank will evaluate each meeting individually. Powell stated, We’re going to be going meeting by meeting and as we go into each meeting, we’re going to be asking ourselves the same questions. So we haven’t made any decisions about any future meetings, including the pace at which we consider hiking, but we’re going to be assessing the need for further tightening that may be appropriate. He also noted that the Fed can afford to be patient as they gather and analyze incoming economic data.
Edward Moya, the senior market analyst at OANDA, commented on the Fed’s approach, saying, The Fed is going to be locked in with all the key inflation data points. The June CPI report was cooler-than-expected, so if that trend continues, the Fed will probably skip in September.
The market is expected to be influenced by the reaction to the Fed’s decision on Thursday. Additionally, reports on second-quarter GDP, durable goods orders, initial jobless claims, and pending home sales are also likely to attract attention.
In conclusion, the Federal Reserve has decided to raise interest rates and is considering further tightening in the future. The central bank stated that inflation remains elevated while economic activity continues to expand and job gains remain strong. Fed Chair Jerome Powell emphasized the importance of assessing incoming data and indicated that the central bank could raise rates again in September or hold steady. The market will continue to closely watch economic indicators and react to the Fed’s decision.
