On Wednesday, the Federal Reserve raised its benchmark interest rate by a quarter percentage point. It gave little indication it is nearing the end of its current policy cycle of interest rate increases. The Federal Open Market Committee increased the federal funds rate by 0.25 percentage points, in line with market expectations. That takes it to a target range of 4.5%-4.75%, the highest since October 2007. The move marked the eighth increase in a process that began in March 2022. By itself, the funds’ rate sets what banks charge each other for overnight borrowing, but it also spills through to many consumer debt products.
It is expected that the Fed will increase interest rates to bring down inflation, which is still running near its highest level since the early 1980s, despite recent signs of a slowdown. The post-meeting statement noted that inflation “has eased somewhat but remains elevated,” a tweak on the previous language. “Inflation data received over the past three months show a welcome reduction in the monthly pace of increases,” Fed Chairman Jerome Powell said in his post-meeting news conference. “And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.” Markets, however, were looking to this week’s meeting for signs that the Fed would be ending the rate increases soon. But the statement provided no such signals. At first, stocks fell in the wake of the announcement, with the Dow Jones Industrial Average tumbling more than 300 points. However, the market rebounded during Powell’s press conference after he acknowledged that “the disinflationary process” had started. Major averages ultimately turned positive as market commentary focused on Powell’s somewhat optimistic comments on progress against inflation.