On Wednesday, the Federal Open Market Committee (FOMC) raised interest rates by half a percentage point, taking it to a targeted range of 4.25% and 4.5% – the highest level in 15 years.
The move comes the day after the Bureau of Labor Statistics released a report saying that the annual inflation rate is at 7.1 percent. The figure is a reduction from the previous month but still far higher than the Federal Reserve’s target of 2 percent.
“Inflation data received to far for October and November show a welcome reduction in the monthly pace of price increases,” Chairman Jerome Powell said at his post-meeting news conference. “But it will take substantially more evidence to have confidence that inflation is on a sustained downward” path.
In a press release, the FOMC warned that additional rate hikes are expected and that no reductions will be made until 2024.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the statement said. “In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the statement added. “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.”