MHMarkets :Fed makes history with second massive rate hike in months

At 2 a.m. Beijing time on Thursday, the Federal Reserves FOMC announced its July interest rate decision, raising interest rates by 75 basis points for the second consecutive month, raising the target range of the federal funds rate from 1.50% to 1.75% to 2.25% to 2.50%, in line with the market. expected. Federal Reserve Chairman Jerome Powell hinted that another 75 basis points of interest rate hikes may be possible in September, denying that the U.S. economy is in a recession, while talking about the possibility of slowing rate hikes. At the end of the July monetary policy meeting, Fed members on Wednesday again approved a massive three-quarter-point rate hike. Members voted unanimously for aggressive measures to combat white-hot inflation.

The unprecedented move underscores how far the Fed is willing to push the economy to moderate rising costs for Americans amid the highest price increases since the 1980s. Fed officials said in an official statement that recent spending and production indicators have softened. Still, job growth has been strong in recent months and unemployment has remained low. Inflation remains stubbornly high, reflecting supply and demand imbalances related to the pandemic, rising food and energy prices and broader price pressures.

The central bank has noted rising energy prices in previous months, but this is the first time they have included rising food costs in their analysis. When the pandemic first hit the U.S., the Federal Reserve rolled out a series of emergency measures to support the economy, including cutting interest rates to zero, making it almost free to borrow. But while this “easy money” policy has encouraged spending by households and businesses, it has also fueled inflation, fueling today's overheated economy.

Now the economy no longer needs the support of the Federal Reserve and is slowing economic growth by raising interest rates. The Fed's action will raise the rate at which banks are borrowing overnight to between 2.25% and 2.50%, the highest level since December 2018. Over the past 30 years, the Fed has raised or lowered its benchmark interest rate by an average of 25 basis points, tending to steer the economy at a slow pace. But soaring inflation forced the Fed to triple interest rates last month, the first 75 basis points of rate hikes since 1994. Wednesday's rate hike was the first two consecutive 75 basis point hikes in the modern Fed's history.

Financial data and events to focus on today:

20:00 German July CPI monthly rate initial value

20:30 Initial jobless claims for the week ending July 23

20:30 Initial value of the annualized quarterly rate of real GDP in the second quarter of the United States

20:30 Preliminary quarterly rate of real personal consumption expenditures in the second quarter of the United States

20:30 The initial value of the annualized quarterly rate of the core PCE price index in the second quarter of the United States

22:30 U.S. to July 22 EIA natural gas inventories for the week