The Fed hikes interest rates by a quarter point and hints at another increase this year

Jul 26, 2023, 12:07 PM | Updated: 2:03 pm

Fed Chair Jerome Powell, the fed just announce interest rate hike...

Fed Chair Jerome Powell arrives to speak during a news conference following a meeting of the Federal Open Market Committee at the headquarters of the Federal Reserve on June 14, in Washington, DC. (Drew Angerer/Getty Images)

(Drew Angerer/Getty Images)

Washington, DC (CNN) — The Federal Reserve raised its benchmark lending rate by a quarter point Wednesday, lifting interest rates to their highest level in 22 years.

It’s the 11th rate increase since the Fed began its inflation fight in March 2022, and comes just one month after the central bank hit pause in order to assess the state of the economy after the failures of three regional banks since the spring.

Fed officials are estimating one more rate hike this year, according to their latest set of projections. Inflation’s steady slowdown in recent months has been encouraging for American consumers and businesses, but officials reiterated in their post-meeting statement that “inflation remains elevated” and that the Fed “remains highly attentive to inflation risks,” suggesting that another rate hike remains on the table.

“In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, 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 Fed’s statement said.

Inflation is still the No. 1 focus

The Fed’s preferred inflation gauge — the Personal Consumption Expenditures price index — rose 3.8% in May from a year earlier, down from the prior month’s 4.3%. Meanwhile, the core measure inched down to 4.6% from 4.7% during the same period, which was still its lowest level since October 2021. The Commerce Department releases June figures on Friday.

Officials want to retain the option of another rate hike in case inflation proves to be more resilient than expected, but the timing of that final hike is still a question mark. It’s possible that a second hike never comes and the Fed decides to move on to the next phase of its inflation fight, which would be to hold rates steady until inflation is defeated.

Investors are bullish about the end of rate hikes and the Fed’s chances of pulling off a soft landing, a scenario in which inflation slides to the 2% target without the economy sharply deteriorating. But Fed officials have underscored that they will be data dependent and make decisions on a meeting-by-meeting basis. Fed Chair Jerome Powell’s remarks at the Jackson Hole annual economics symposium next month could shed more light on what to expect in September.

The labor market remains robust

The Fed is highly attentive to the state of the job market, and whether it is coming into better balance. There are some signs that it has. Job openings are down from their peak last year, the rate of quitting has slowed to near pre-pandemic levels, and the share of prime-age workers (those between ages 25 and 54) is at its highest level since 2002.

Inflation has cooled without a sharp uptick in the unemployment rate, but it remains to be seen whether that could continue. Research suggests the Fed has no choice but to slow the economy further because of the tight labor market’s persistent role in pushing up consumer prices, which could result in an economic slump.

The importance of wage growth

Officials are closely watching wage growth figures because of the role that labor costs play in pushing up prices. Higher labor costs loom large for labor-intensive services businesses such as restaurants and hospitals, and the Fed’s remedy to that is to take some demand out of the economy through rate hikes. It could take at least a year for the effect of rate hikes to filter through to the broader, real economy, according to some research, and it’s already been more than a year since the Fed began lifting rates.

Data reflecting a strong economy might just give the Fed enough leeway to do another hike, according to economists. The Commerce Department releases its first estimate of second-quarter gross domestic product Thursday, and it’s expected to show that economic growth held up as consumer spending slowed sharply.

Fed Chair Jerome Powell is set to hold a press conference at 2:30 p.m. ET Wednesday.

This story is developing and will be updated.

™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

Business + Economy

Carla Smith founded and operates Cornerstone Academy in Arlington, Texas. Mandatory Credit: Kaileya...

Tami Luhby and Sydney Topf, CNN

America’s child care problem is about to get a lot worse. Here’s why

Financial aid for child care costs that became available during the pandemic are set to expire this week leaving parents and daycares scrambling.

6 hours ago

FILE - Demonstrators walk with signs during a rally outside the Paramount Pictures Studio in Los An...

Samantha Delouya

Writers Guild board votes to authorize members to go back to work

Leaders of the Writers Guild of America have unanimously voted to authorize its members to return to work following the tentative agreement reached Sunday.

21 hours ago

Image of Amazon logo. U.S. regulators and 17 states are suing Amazon over allegations the e-commerc...


Amazon sued by FTC and 17 states over allegations it inflates online prices and overcharges sellers

The complaint is the result of a years long investigation into Amazon's businesses and one of the most significant legal challenges brought against the company in its nearly 30-year history.

1 day ago

President Joe Biden is set to join members of the United Auto Workers union on September 26 in Wayn...

Betsy Klein and Nikki Carvajal, CNN

Biden makes a historic trip to Michigan to walk the picket line to show solidarity with striking UAW – and counter Trump

The trip comes as President Biden faces consistently low polling numbers on his handling of economic issues.

1 day ago

FILE - Demonstrators walk with signs during a rally outside the Paramount Pictures Studio in Los An...

Andrew Dalton

The Hollywood writers’ strike is on the verge of ending. What happens next?

Now that the nearly five-month-old Hollywood strike is nearly over, what happens next?

1 day ago

Dundee, a 4-year-old American pit bull mix, peers through his kennel at Salt Lake County Animal Ser...

Mariah Maynes

“Empty the Shelters” pet adoption event coming in October

BISSELL Pet Foundation has teamed up with animal shelters across the United States to host a reduced-fee pet adoption event in October.

2 days ago

Sponsored Articles

silhouette of a family looking over a lake with a bird in the top corner flying...

Bear Lake Convention and Visitors Bureau

8 Fun Activities To Do in Bear Lake Without Getting in the Water

Bear Lake offers plenty of activities for the whole family to enjoy without having to get in the water. Catch 8 of our favorite activities.

Wellsville Mountains in the spring with a pond in the foreground...

Wasatch Property Management

Advantages of Renting Over Owning a Home

Renting allows you to enjoy luxury amenities and low maintenance without the long-term commitment and responsibilities of owning a home.

Clouds over a red rock vista in Hurricane, Utah...

Wasatch Property Management

Why Southern Utah is a Retirement Paradise

Retirement in southern Utah offers plenty of cultural and recreational opportunities. Find out all that this region has to offer.

Human hand holding a protest banner stop vaping message over a crowded street background....

Prosperous Utah Communities

Utah’s Battle to Protect Youth from Vaping Epidemic Faces New Threat as Proposed Rule Threatens Progress

Utah's strict standards of nicotine levels in vaping products are at risk, increasing health hazards associated with use. Read more about how you can advocate for a better future for Utah's youth.

Aerial photo of Bear Lake shoreline with canopies and people camped out on the beach...

Visit Bear Lake

Last-Minute Summer Vacation Planning? Check Out Bear Lake!

Bear Lake is the perfect getaway if you are last-minute summer vacation planning. Enjoy activities with your whole family at this iconic lake.

close up of rose marvel saliva blooms in purple...

Shannon Cavalero

Drought Tolerant Perennials for Utah

The best drought tolerant plants for Utah can handle high elevations, alkaline soils, excessive exposure to wind, and use of secondary water.

The Fed hikes interest rates by a quarter point and hints at another increase this year