July FOMC Meeting: Fed Delivers Another 75 bps Rate Hike

Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, ... SelectRegion UnitedStates UnitedKingdom Germany India Youmightbeusinganunsupportedoroutdatedbrowser.TogetthebestpossibleexperiencepleaseusethelatestversionofChrome,Firefox,Safari,orMicrosoftEdgetoviewthiswebsite. advisor Investing AdvertiserDisclosure JulyFOMCMeeting:FedDeliversAnother75bpsRateHike TaylorTepperForbesAdvisorStaffReviewedByBenjaminCurryeditorReviewedByUpdated:Jul27,2022,3:16pm EditorialNote:WeearnacommissionfrompartnerlinksonForbesAdvisor.Commissionsdonotaffectoureditors'opinionsorevaluations. Getty TheFederalOpenMarketCommittee(FOMC)concludeditsJuly26-27meetingbyraisingthefederalfundstargetrateby75basispoints(bps)toarangeof2.25%to2.50%. ThisisthesecondFedmeetinginarowthatendedina75bpsratehike.Today’sdecisioncameinaunanimous12-0vote.TheJune75bpsrateincreasewastheFed’slargestsinceNovember1994. Inadditiontoraisingitskeyinterestrate,theFedcontinueditspolicyofunwindingitsrecordbalancesheet.Thebalancesheetpeakedatnearly$9trillioninmid-March,andfellto$8.9trillioninlateJuly. HistoricallyhighlevelsofinflationaredrivingtheFed’srecentmonetarypolicydecisions.WithmajormeasuresofpricegainsintheU.S.remainingat40-yearhighs,consumersarefeelingthepinch,andwiththeeconomypossiblyslowing,fearsofstagflationaregrowing. “Rightnow,marketsarevolatileanddirectionless,”saysDavidBahnsen,chiefinvestmentofficeratTheBahnsenGroup.“There’salotofuncertaintyoverwheninflationdatawillstarttomovelowerandhowtheFederalReservewillrespondtovariouseconomicdatapointsinthemonthsahead.” TheFed’sInflationObsession FedChairJeromePowellhasspent2022assuringmarketsandeverydayAmericansthatthecentralbankismonomaniacallyfocusedonloweringinflation. “Inflationremainselevated,reflectingsupplyanddemandimbalancesrelatedtothepandemic,higherfoodandenergyprices,andbroaderpricepressures,”accordingtotoday’sFOMCstatement. EventsbeyondtheFed’scontrolhavemadethatjobmuchharder. Russia’sinvasionofUkrainehascompletelydisruptedcommoditiesmarkets,pushingupthepriceoffoodandenergyworldwide.Meanwhile,afterhopesthattheCovid-19pandemichaddieddown,outbreakscontinuetocropupworldwide,withsomecountriesimplementinglockdownmeasurestoquashinfections. Chinarecentlyquarantined1millionpeopleinWuhan—wherethevirusfirstemergedin2019—monthsafterlockdownswereimposedonShanghai.Australiaisdealingwithrecentoutbreaksthathavestresseditshospitalsystems. Allofthishasfurtherstressedalreadystressed-outglobalsupplychains. Whencentralbanksincreaseinterestrates,thegoalistoboostborrowingcostsandreducetheamountofmoneyavailableintheeconomy.Thisshouldhavetheresultofdampeningtheeconomyandloweringprices. HasPeakInflationAlreadyArrived? Someeconomistssaythatthebiggainsininflationhavealreadyleveledoff.Analystshavestartedreferringtothismosthoped-forstateofaffairsaspeakinflation. WhiletheheadlineJuneconsumerpriceindex(CPI)wasup9.1%.ThecoreCPIreading—whichstripsoutvolatilefoodandenergyprice,wasonlyup5.9%.ComparethattothecoreCPIreadingof+6%inMayand+6.2%inApril,bothofwhichwerewellbelowtheMarchpeak. Meanwhile,thecorepersonalconsumptionexpenditures(PCE)priceindexwasonly4.7%inMay,comparedto4.9%inApril—bothwelloffthe5.3%gaininFebruary.TheFedusescorePCEinflationasitsmaingaugeofU.S.pricegains,butCPIstillinformsitsthinking. WhilecorePCEisstillabovetheFed’stargetof2%,itappearsthatcoremeasuresofinflationshowpriceshavemoderated. AninflationreadingthatdoesnotincludefoodandgasmaymakemoresensetoaneconomistthananormalAmerican,butthereareglimmersofhopeamongthesevolatilecategories.Crudeoilpricesarewellofftheirhighs,andgasolinepricesatthepumphavebeguntodecline,too. “Webelieveinflationhaspeakedatthistimeandweexpecttherateofinflationtocomewaydowninthenextsixmonthsbutremainaboveitspre-Covidlevels,”saidBahnsen.“Therecentdecreaseincommoditypricesgivesaglimpseofwhatistocomeacrosstherestoftheinflationpicture.” TheJobMarketCouldBeaWildcardfortheFed ThebigquestioniswhethertheFedcanraiseinterestrateswithoutcausingtoomucheconomicdamage.Someobserversarelessthanoptimistic. “Thisaggressivehittingthebrakesinadoomedcatch-upagendaiswaytoolate,”saidNigelGreenofassetmanagementfirmdeVereGroup.“TheFedisoutofstepand;therefore,it’snowhelpingpushtheworldintoaglobalrecession.” Thegoodeconomicnewsisthatthelabormarketstilllookshealthy.Theunemploymentratesitsat3.6%,downfrom5.9%theyearbefore.Higherinflationhasmeantthatmanyworkershavebeenabletocommandbetterpay,withwagesup5.3%overthepastyear,accordingtotheAtlantaFed.Plus,thereweremorethan11.25millionopenjobsinMay. Butthosenumbershidsomeworryingtrends. Takejobopenings:Whiletherearemanymoremillionjobsavailablecomparedtobeforethepandemic,theoverallnumberisdownfrom11.86millioninMarch.Atthesametime,therewere251,000initialjoblessclaimsinthemiddleofJulycomparedto166,000justfourmonthsearlier. Andwhilewagesareup,they’reuplessthaninflation,loweringU.S.householdpurchasingpower.Homesaleshaveslowedaspricesandinterestrateshaverisen,andconsumerconfidenceisinthedumps. Someofthisistobeexpected.Afterall,theFedwantstolowerinflationbyraisinginterestratesinthehopethatpeoplewillspendless.Buteconomicprojectionshavefallendramaticallyasinflationhasremainedpersistentlyhighthroughout2022,causingmanytobelievethatarecession,nomatterhowyoudefineit,isnigh. Oncethathappens,theFedwillpresumablyrespondbycuttinginterestratesonceagain. FederalOpenMarketCommittee(FOMC)FAQs WhatistheFederalReserve? TheFederalReserveisthecentralbankoftheUnitedStates,andisgenerallyconsideredtobethemostpowerfulcentralbankintheworld.OftenreferredtoastheFed,itwasfoundedtodirectmonetarypolicyandmanagethefinancialsystem.Aseven-memberboardgovernstheFed,andthereare12FederalReserveBanksinregionsthroughouttheU.S. WhatistheFOMC? TheFederalOpenMarketCommittee(FOMC)ismainpolicymakingbodyoftheFed.TheFOMCsetsthefederalfundstargetrateandmakesothermonetarypolicydecisionsfortheFed.TheFOMCmeetseighttimesayeartovoteoninterestratesandpolicypriorities. WhoisontheFOMC? Thereare12membersoftheFOMC: ThesevenmembersoftheFedBoardofGovernors,ledbyFedChairJeromePowell. Fiveofthe12FederalReserveBankpresidents,althoughtheheadoftheFederalReserveBankofNewYorkisapermanentmemberoftheFOMC.TheotherfourvotingpositionsarefilledonarotatingbasisbythepresidentsoftheotherFederalReserveBanksacrossthecountry.Eventhoughmostpresidentsdon’tvote,theycanallattendthemeetingsanddebatepolicy. WhenisthenextFOMCmeeting? ThenextFOMCmeetingisscheduledforSeptember20-21.TheFOMCholdeightscheduledmeetingsayear,oneeveryeverysixweeksorso.Thecommitteecanmeetwheneveritfeelsnecessaryandbelievesthatitneedstoact,suchasduringafinancialcrisis. WhenaretheFOMCminutesreleased? TheFOMCreleasesminutesofitsmeetingsthreeweeksafterthemostrecentmeeting.Afulltranscriptisn’tavailableforafullfiveyearsafterameeting. HowmanytimeswilltheFOMCraiseratesin2022? TheFOMChasraisedinterestratesfourtimesin2022sofar,puttingthefederalfundstargetrateat2.25%to2.50%.AccordingtotheCMEFedWatchTool,marketprofessionalsarebettingthattheFOMCwillmostlikelyraisethefedfundsrateto3.25%to3.50%bytheendoftheyear.ThissuggeststhattheFOMCcouldraiseratesatleasttwomoretimesthisyear,foratotalofsixratehikesin2022. Wasthisarticlehelpful? Shareyourfeedback Sendfeedbacktotheeditorialteam RatethisArticle ★ ★ ★ ★ ★ Pleaseratethearticle Email Pleaseentervalidemailaddress Comments We'dlovetohearfromyou,pleaseenteryourcomments. 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