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Fed Hikes Rates Again - Not Ready to Declare Victory on Inflation Despite June Reprieve

By Jake Beardslee · July 27, 2023

In brief…

  • Despite improved inflation data in June, the Fed raise rates at its last meetig
  • The bank continues to lean hawkish and is open to more rate hikes this year.
  • Fed Chair Powell said the June CPI report, though encouraging, is just "one month's data" and more evidence needed that inflation is cooling.
  • The Fed next meets in September, when another rate hike is possible.
Chair Jerome Powell said the Fed remains open to further rate hikes until inflation is definitively under control.  Federalreserve, Public domain, via Wikimedia Commons

Despite a welcome drop in June’s inflation data, the Federal Reserve is maintaining its hawkish stance, raising rates by 0.25%, and leaving the door open to further rate hikes this year.

Speaking at a news conference following the Fed’s decision to raise rates by 0.25% today, Chair Jerome Powell said June’s improved CPI report is “only one month’s data” and the central bank needs more evidence that inflation is on a sustainable downward path.

“We hope that inflation will follow a lower path as was it will be consistent with the CPI reading. But we don’t know that. And we’re just going to need to see more data,” Powell said.

He noted the Fed will be carefully assessing economic data over the next eight weeks leading up to its September policy meeting, when another rate hike will be under discussion.

“It is certainly possible that we would raise funds again at the September meeting if the data warranted. And I would also say it’s possible that we would choose to hold steady at that meeting,” Powell stated.

The Fed chief emphasized the central bank is focused on achieving a “soft landing” through further policy tightening if needed. Since March 2022, the Fed has hiked rates by a cumulative 5.25 percentage points.

“Monetary policy, we believe, is restrictive and is putting downward pressure on economic activity and inflation,” Powell remarked.

When asked if the recent data changes the Fed’s baseline outlook for two more hikes this year, Powell reiterated that policymakers will decide meeting-by-meeting based on the latest economic developments.

“We’re now mainly thinking about the next meeting,” he said.

The Fed’s determination to curb inflation, even in the face of signs it may be peaking, underscores its commitment to achieving its 2% target over the long run. Barring a significant downward shift in the data, further rate increases appear likely as the central bank seeks to avoid any premature easing.