The Federal Reserve raised interest rates by 25 basis points to a new high in 22 years. Whether it will raise interest rates depends on these data

Just after suspending interest rate hikes in June 2023, the Federal Reserve raised borrowing costs again at its policy meeting on Wednesday local time, deciding to raise interest rates by 25 basis points.The move to raise the target range for the US federal funds rate to 5.25-5.5 per cent, the highest level in 22 years, marks the Fed's 11th rise since March 2022 in an attempt to curb inflation.

Federal Reserve Chairperson Jerome Powell pointed out that there are many signs that the Federal Reserve's efforts to raise interest rates have produced significant results, but there is still a long way to go before inflation can return to its 2% target.

The next rate hike depends on the data

Powell declined to say when another rate hike might be possible. The Federal Reserve plans to hold three more meetings in 2023, with the next meeting in September. He said,Some economic reports ahead of the Federal Reserve's September meeting will be important indicators, including two employment reports, two consumer price inflation reports, and employment cost data.

The news of the Federal Reserve's interest rate hike sent U.S. markets mixed.The S & P 500 Index closed largely flat on Wednesday, with the tech-heavy Nasdaq edging lower, while the 10-year Treasury yield fell to 3.850 percent after climbing to 3.911 percent on Tuesday.

Societe Generale (601166) US interest rate policy expert Subadra Rajappa told US media,Adding 25 basis points is not particularly important for investorsBut if you told me to raise rates by 100 basis points, that would be a huge change.

The price of labor is constrained, and inflation is difficult to decline

The U.S. inflation rate has retreated from a 40-year high set in the summer of 2022, and now its consumer price index in JuneUp 3% year-on-yearThis is well below the peak of 9.1% in June 2022.

The concern for Federal Reserve officials is that,Since the labor market allows workers to bargain for higher wages, maintaining higher labor prices makes it more difficult to reduce inflation.

According to the Labor Department's Consumer Price Index, the core consumer price index for JuneExcluding volatile food and energy pricesThe increase was the smallest in more than two years.But the core consumer price index, which Fed officials are more concerned about because it is a better predictor of future inflation, remained elevated at 4.8 per cent in June from a year earlier.

"Inflation has repeatedly proved stronger than we and other forecasters expected", Powell said. He also said that the Federal Reserve's expectations for the U.S. economy have also changed, no longer just expressing" the economy will begin to decline ", but expecting economic growth to"noticeable slowdown”。

The U.S. economy has largely withstood higher interest rates

The Federal Reserve has been fighting inflation by raising interest rates.But it also raises questions about rising US borrowing costs, falling stock prices, and the continued strength of the dollar. The US federal funds rate also affects other borrowing costs, including mortgage, credit card, and auto loan rates.

The Federal Reserve began its most aggressive tightening campaign since the 1980s in early 2022 to rein in inflation, which hit a 40-year high in 2022. While the Fed paused rate rises last month to assess the impact of previous moves, they also said at the time that two more increases were likely by the end of the year.

Recent reports show that,So far, the U.S. economy has largely withstood higher interest rates, so this rate hike is widely expected.But before Tuesday's decision, investors largely viewed news of a near-term rate hike as uncertain, in part because the consumer price index showed inflation had fallen sharply.

Powell said: "The policy is not yet sufficient to have all the desired effects”，“We plan to maintain this policy until we are confident that inflation can be sustainably reduced to our 2% target”