“Hike held off; does not close the possibility of further increases”.

After the June pause and in line with market expectations, the FED increased by a quarter of a percentage point (25bp) the target range for the reference rate to 5.25 – 5.50%, a 22-year high. This move represented the eleventh increase since March 2022, when the range was near zero. The decision was unanimous.

Inside, the statement revealed language very similar to that of June, where it ratified that in order to determine the degree of additional monetary policy tightening that might be appropriate to eventually bring inflation back to 2%, the Committee will take into account all the measures that have been implemented so far, the lags with which monetary policy affects economic activity and inflation, as well as the development of economic and financial factors. It will also continue to evaluate additional information as it emerges and its implications. These sentences suggest that officials are keeping their options open to implement another hike at their next meeting in September, or to pause or omit an increase depending on incoming data and information.

On the other hand, the Committee described that recent indicators reveal that economic activity has been expanding at a moderate pace (in the previous release it referred to a modest expansion). Job creation has been solid in recent months and the unemployment rate has remained low. However, inflation remains elevated. Finally, he noted that the U.S. banking system is strong and resilient.

During his press conference, Jerome Powell stressed that future decisions will be data dependent. Therefore, he reiterated that the options for the FED are open. In particular, he commented that a decision has not yet been made for the next meetings, referring to the next meeting on September 20. In this sense, he communicated that the decision to increase or maintain the rate at that meeting will be influenced by the large amount of information that will be known by that date.

Expectations for the Federal Funds Rate

Source: JP Morgan