The Fed has raised the funds rate, which is now at its highest level since 2001, 525 basis points since March 2022, and at a news conference Wednesday, Fed Chairman Jerome H. Powell said further rate hikes are possible.
"We haven't made any decisions about any future meetings, including the pace at which we'd consider hiking, but we're going to be assessing the need for further tightening that may be appropriate … to return inflation to 2% over time," he said.
Between Wednesday's announcement and the next Fed meeting in September, Mr. Powell noted that additional economic data will be available, including two jobs reports and two consumer price index reports. "I would say it is certainty possible that we would raise funds (federal funds rate) again at the September meeting if the data warranted, and I would also say it's possible that we would choose to hold steady at that meeting," Mr. Powell said. "We're going to be making careful assessments, as I said, meeting-by-meeting."
The committee's 11 members unanimously approved the latest rate hike and said in a statement that it "will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments" when weighing additional policy firming.
Although still higher than the Fed's 2% target, inflation has cooled in recent months. Notably, the consumer price index rose 3% in June from a year earlier, the smallest 12-month increase since March 2021, and below the 4% annualized increase posted in May 2023, according to data the Bureau of Labor Statistics released July 12. The monthly CPI has been steadily declining since reaching 9.1% in June 2022, which marked a 40-year high.
Mr. Powell said there’s an attainable path to bringing inflation down to the Fed’s target without triggering a recession. “We’ve seen, so far, the beginnings of disinflation without any real costs in the labor market and that’s a really good thing.”
He also said the Fed staff “now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession.
Gurpreet Gill, global fixed-income macro strategist at Goldman Sachs Asset Management, said in a statement that while Wednesday's quarter-point hike was fully priced in and widely expected by forecasters and investors, those investors remain divided on whether this marks the last increase in the current tightening campaign.
"Given the uncertainty around when the Fed's hiking cycle will conclude, we have limited exposure to U.S. rates." Ms. Gill said. "We think further disinflation progress will limit the extent to which U.S. Treasury yields will rise, while a resilient labor market and economy will temper the extent to which yields can fall."
Brandon Swensen, senior portfolio manager within the BlueBay fixed-income team at RBC Global Asset Management, said in a statement that his firm expects "one additional hike from the Fed this year based on our expectation for current disinflationary trends to continue and the passage of time to allow further decreases in inflation towards the Fed's 2% target."
Also of interest to the Fed, the unemployment rate dipped slightly in June to 3.6%, down from 3.7% in May. On Wednesday, Mr. Powell repeated his characterization of the labor market as "very tight."
Shortly after Wednesday's announcement, market participants indicated there is a 79.1% probability that the Fed will leave rates unchanged at its next meeting, according to the CME FedWatch Tool that tracks trading in the 30-day fed funds futures.
The Fed's next meeting is Sept. 19-20.