Fed raises interest rate to 5.5%, its highest level in 22 years

The hike comes just a month after the Fed put a pause on the steady rate increases it had been making since March 2022.

The Federal Reserve (Fed) announced a new increase in interest rates. This brings rates to a range of 5.25% to 5.5%, the highest level for the upper bound in 22 years, i.e. since 2001:

The Committee decided to raise the target range for the federal funds rate from 5-1/4 to 5-1/2 percent. The Committee will continue to evaluate additional information and its implications for monetary policy.

The hike comes just one month after the Fed put  a halt the steady increase in rates it had been making since March 2022. However, officials stated at the time that adjustments would continue to be made to reach the inflation target of around 2%.

Monetary 20230726 a 1 by Verónica Silveri

In the press release, Fed officials expressed confidence in the U.S. banking system. On the other hand, Fed President Jerome Powell commented that although inflation has slowed, it still has "a long way to go" to reach the desired target.

The U.S. banking system is strong and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain. The Committee remains very vigilant on inflation risks

Inflation has moderated somewhat since the middle of last year. However, the process of bringing inflation down to 2% has a long way to go.

Powell also indicated that "the labor market remains very tight." However, he added that there is a better balance between labor supply and demand than last year:

There are some continuing signs that supply and demand in the labor market are balancing better. The labor force participation rate has increased since last year, particularly for people aged 25 to 54. Nominal wage growth has shown some signs of easing and job vacancies have declined so far this year,