Federal Reserve Implements Expected 25 Basis Points Rate Hike, Future Hikes to Depend on Data

The Federal Reserve has raised its benchmark interest rate by 25 basis points to a range of 5.25%-5.50%, reaching the highest level since 2001, in line with market expectations. This marks the 11th rate hike in the past 17 months, bringing the federal funds rate to the highest level in 22 years. The move comes as a response to the ongoing efforts to address inflationary pressures in the economy.

Investors are paying attention to any signs indicating that this may be the final rate hike in the current cycle. Despite policymakers stating during the June meeting that there might be two more rate hikes this year, the financial markets have already factored in the possibility that there won't be any further rate increases in the remaining part of the year.

According to the Federal Reserve's FOMC statement, there is strong job growth, low unemployment rate. The Federal Reserve will closely monitor the risks posed by inflation and continue to assess more information to consider further tightening of monetary policy to curb inflationary pressures.

During the monetary policy press conference, Federal Reserve Chairman Powell stated that the labor market remains very tight, with strong job growth, and inflation has somewhat eased. However, the process of bringing inflation back down to 2% still has a long way to go. The FOMC will continue to rely on data for future rate hikes, and if the data suggests the need, a rate hike may be implemented in September. Powell also noted that core inflation remains relatively high, requiring interest rates to be kept at higher levels for some time, and the Federal Reserve no longer predicts an economic recession in the United States.

Indeed, looking at the yield curve of the U.S. 2-year and 10-year Treasury bonds, there is still a significant inversion, indicating that the market perceives a potential economic recession in the United States.

According to CME's “FedWatch” data, after the July interest rate decision announcement, the market predicts an 80% probability that the Federal Reserve will maintain interest rates at 5.25%-5.50% in September, a 20% probability of a 25 basis point increase to 5.50%-5.75%, and a 0% probability of a 50 basis point increase to 5.75%-6.00%.