Here's the latest tidal wave in the world of finance: The Federal Reserve just cranked up the policy rate to a range of 5.25%-5.50%, according to a recent Reuters report. That's the highest it's been in 16 years, folks!
Why the surge, you ask? It's all thanks to inflation that's sticking around like a barnacle on a ship's hull. This rate hike is the Fed's 11th in its last dozen meetups, and it sends the benchmark overnight interest rate into the 5.25%-5.50% zone. But don't rest easy yet; they've left the porthole open for potentially more increases.
The Federal Open Market Committee, the guys holding the steering wheel, isn't dropping any anchors yet. They're keeping their eyes on the horizon, assessing new info and its implications for monetary policy. Basically, they're still on the lookout for a safe harbor to end this current tightening cycle.
The plot thickens when you realize that even though inflation data since June has been a little softer than expected, the Fed's still keeping its hawk-eye view. They're not ready to switch gears until they've made a bigger dent in reducing price pressures.
"Brace yourselves for possibly more rate hikes if inflation doesn't start calming down," says Kathy Bostjancic, the head economist at Nationwide. But there's a silver lining - she reckons that the Fed might be done with rate hikes for this cycle as easing inflation could passively lead to a tighter policy.
But let's not forget the rest of the picture. The US economy is still going strong, with an unemployment rate bobbing at a low 3.6% even with these rapid interest rate increases. Job growth is still going strong, and the economy is growing at a "moderate" pace, which is an upgrade from the "modest" pace they saw back in June.
Yet, with about two months until the next Fed rendezvous, if we see some continued chill in the pace of price increases, this could be the last rate hike for a while. This journey started with a careful quarter-percentage-point increase in March of 2022 and sped up into the fastest monetary tightening we've seen since the 1980s.
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[Reference: Reuters]
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