Fed rate hike – Key takeaways from the decision and Powell’s news conference

Fed officials raised interest rates by a quarter-percentage point, as was widely expected by Fed watchers, to a range of 5.25% to 5.5% after pausing tightening at last month’s meeting.

In a post-meeting statement, they also left the door open to further policy tightening this year.

Federal Reserve Chair Jerome Powell said the central bank would take a data-dependent approach to future interest-rate hikes.

“Looking ahead, we will continue to take a data-dependent approach,” Powell said Wednesday during a press conference following the US central bank’s two-day policy meeting.

Here are the key takeaways from the Federal Open Market Committee’s interest-rate decision and Chair Jerome Powell’s news conference Wednesday.

• As expected, policymakers lifted rates by a quarter point to a target range of 5.25% to 5.5%. While this week’s increase followed a pause at the last meeting, Powell pushed back against the idea that the Fed will now move to a pace of raising rates at every other meeting, noting that officials could either keep rates steady in September or they could raise rates again at that meeting.
• Powell said officials would be data-dependent. With a longer interval of eight weeks before the September meeting, policymakers will have two more jobs reports and two more consumer price reports in hand by that gathering. It will be interesting to see whether he uses the Jackson Hole conference next month to send a stronger signal about the direction of future policy.
• The Fed chief said officials welcomed the consumer price report showing that inflation rose by 3% in the 12 months through June. But he said officials are trying not to read too much into any one month of data. A stronger economy brings stronger inflation down the line, Powell said, adding that the process of getting inflation down to 2% has a long way to go. This shows officials do not want to stop their tightening campaign too early.
• The statement mildly upgraded the assessment of the economy to say activity has been expanding at a “moderate pace” compared to June’s “modest” pace. Powell also shared that the Fed staff no longer have a recession in their projections, which are independent of those issued by policymakers. But Powell repeated a cautionary note multiple times that we would likely need to see more softness in the labour market before inflation comes down.
• Bond yields dropped, with the two-year US yields, sensitive to imminent Fed moves, falling to 4.84%. US equities rallied during the press conference before reversing gains, with the S&P 500 and the tech-heavy Nasdaq 100 resuming losses.