Fed greenlights another 75-basis-point rate hike

For the second time in consecutive months, Federal Reserve officials on Wednesday raised interest rates by 75 basis points in an effort to tamp down inflation.

The Federal Open Market Committee raised the target range for the federal funds rate to a range of 2.25% to 2.5% following a two-day meeting that concluded Wednesday. It was the committee’s fourth time raising rates in as many meetings after another 75-basis-point increase in June, a 50-basis-point increase in May and a 25-basis-point increase in March.

The committee’s 12 members unanimously approved the rate hike Wednesday and said in a statement that it expects “ongoing increases in the target range will be appropriate.”

Fed Chairman Jerome H. Powell said at a news conference Wednesday that “the pace of those increases will continue to depend on the incoming data and evolving outlook for the economy.”

Moreover, the committee will continue reducing its balance sheet in an effort to rein in inflation, Mr. Powell said. In May, the committee announced plans to trim $47.5 billion a month — $30 billion in Treasuries and $17.5 billion in mortgage-back securities — from the balance sheet starting June 1. After three months the committee plans to ramp up to cutting as much as $95 billion a month — $60 billion in Treasuries and $35 billion in mortgage-back securities.

While unemployment has remained low, inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures, the committee said.

Much like after its last meeting, the committee said “Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The committee is highly attentive to inflation risks.”

Consumer prices rose 9.1% year-over-year in June, the largest 12-month increase since the 12 months ended November 1981, according to data from the Bureau of Labor Statistics released July 18.

“We are highly attentive to inflation risks and determined to take the measures necessary to return inflation to our 2% longer-run goal,” Mr. Powell said. “This process is likely to involve a period of below-trend economic growth and some softening in labor market conditions, but such outcomes are likely necessary to restore price stability and to set the stage to achieve maximum employment and stable prices over the longer run.”

Phillip Neuhart, director of market and economic research at First Citizens Bank Wealth Management, said in a statement that the Fed’s 75-basis-point increase was expected. “Investors now have to consider the implications of further rate hikes in months to come and what this means for markets and the economy,” Mr. Neuhart said. “With multidecade high inflation, the Fed remains aggressive, which we believe will drive elevated market volatility for the remainder of the year.”

As of its last meeting in June, the committee’s median projection for the federal funds rate is 3.4% at the end of the year — up from 1.9% projected in March and 0.9% projected in December — and 3.8% at the end of 2023.

The committee’s next meeting is Sept. 20-21; it will release an updated forecast then.