Fed Hikes Benchmark Rate by 25 Basis Points, Signals More Increases to Come

The Federal Reserve continued its campaign to bring down inflation by approving an increase in its benchmark interest rate of one-quarter of a percentage point, saying it anticipates further increases in the future.

Officials agreed Wednesday to lift the federal funds rate to a range between 4.50 percent and 4.75 percent, the highest since 2007.

“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” the Federal Reserve’s Federal Open Market Committee (FOMC) said in a statement.

Investors had expected the 25 basis point raise, the eighth consecutive Fed hike since the Fed began raising its target in March of 2022. At the prior meeting in December, the Fed raised its target range by half a percentage point.

Markets expect the Fed will hike one more time this year at the meeting and then pause to observe how the economy and inflation react to the highest interest rates in over a decade. Fed chair Jerome Powell and other central bank officials have warned the market against interpreting a slowdown in hikes or a pause as preceding an imminent pivot to cutting rates. The prices of various financial assets, however, suggest that investors do anticipate a rate cut before the year is over.

“In determining the extent of future increases in the target range, the Committee 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,” the FOMC said.

The statement said that the FOMC is “highly attentive to inflation risks,” a phrase the Fed has used since its second hike in May of last year.

The Fed dropped references to the pandemic from this statement, including a line that attributed inflation to “supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.” The Fed also no longer says it is closely monitoring “public health” when assessing possible changes to monetary policy.

The Fed noted that inflation has improved in recent months.

“Inflation has eased somewhat but remains elevated,” the statement sad.