Fed raises interest rates a quarter point

At least one more rate hike expected this year, but investors hope any hikes are small and short-lived.

As anticipated by economists and investors, the Federal Reserve increased its benchmark interest rate a quarter of a percentage point while indicating more hikes are likely in the future.

The rate increase boosts the target range to the 4.5% to 4.75% range, the highest range since 2007, and marks the eighth increase since March of last year.
The Fed hopes the rate increases will bring down inflation, that while showing recent signs of slowing, are still at levels not seen in 40 years. Investors were hoping for signs from the bank that rate increases would end soon, but the official statement from the Fed noted that inflation has eased somewhat, but remains elevated, signaling rate hikes are likely to continue.

In a slight tweaking of language in the official statement, the Fed did indicate it would determine the “extent” of future increases on how the current rate hikes effect the economy. The previous rate hikes take months to work their way through the economy, so the Fed does not yet know how effective they have been. In previous statements, the word “pace” was used in place of “extent.”

Last year saw four consecutive 0.75 percentage point increases followed by a half-percentage point boost in December.

In addition to rate hikes, the Fed has been reducing its bond portfolio by $445 billion since June, which is the equivalent of 2 percentage points of rate hikes, according to the San Francisco Federal Reserve.

Many economists think the Fed will ultimately cut rates later this year after another increase in March of what is expected to be 0.25%.

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