Fed Raises Rates, Leaves Door Open to More Hikes

In a unanimous decision, Federal Reserve policymakers raised the federal funds rate to 5.5%, the highest point since 2001.

As expected, the Federal Reserve raised the target range for the federal funds rate by 25 basis points, or a quarter percent, to 5.25% to 5.50%. It was a unanimous decision. The upper bound of the range now stands at the highest level since 2001. In addition, the Fed will continue to reduce its balance sheet (quantitative tightening) by allowing up to $95 billion per month in bonds to mature without reinvestment.

At 5.5%, the upper bound of the federal funds rate is the highest since 2001

Statement was left nearly unchanged

The Federal Open Market Committee (FOMC) made few modifications to its statement, except to upgrade its description of growth to "moderate" from "modest." However, it did retain the language that indicated job gains remain "robust" and inflation "elevated," even though inflation has fallen substantially over the past few months.

More importantly, it dropped any allusion to pausing rate hikes in the near term, noting only that the committee will consider the cumulative tightening and the lag time between a change in policy and its effect on the economy and any new financial developments in setting policy.