The FOMC raised rates by 75 bps which was widely expected

As widely expected, the Federal Open Market Committee raised the range of its target for the the federal funds rate by 75 bps, which brings the top end of the range to 2.50%. There was widespread support for another supersized rate increase-the FOMC raised rates by 75 bps at its last meeting in June. The FOMC has now hiked rates by 225 bps since March, this much increase never happened in past 40 years.

In todays decision, the committee again pointed to that fact that inflation remains high. For sure the YoY rate of CPI inflation rose from 8/6% in May to 9.1% in June, which was higher then others, and likely most FOMC members, had expected at the time. The statement also repeated that “the committee is strongly committed to returning inflation to its 2 percent objective”. This sentence, which was used previously in the June statement, in connection with the unanimous vote to raise rates by another 75bps today, indicates that inflation remains forefront in the minds of most FOMC members.

The FOMC raised rates by 75 bps which was widely expected.

All 12 voting members of the committee supported the decision to hike rates by 75 bps. Inflation remains forefront in the minds of most committee members. The statement announcing the decision to hike rates noted that the committee is strongly committed to returning inflation to its 2 percent objective.

The FOMC also made a reference to recent data indicating that the pace of economic activity has downshifted. The statement indicated that more tightening likely will be appropriate. The degree of tightening will also depend on incoming data.

Strong labor market data or continued hot inflation data likely would prompt the committee to hike by another 75 bps in September. On the other hand, weak labor market data or lower inflation likely would result in a smaller rate hike.

Bottom line is, the FOMC is edging into data dependency mode. That is, the committee has wanted to raise rates as fast as possible in recent months to get the fed funds rate back to some measure of “neutral”. However, there is no precise estimate of “neutral”, most members of FOMC would place It somewhere around 2-1/2% based on the Summary of Economic Projections.