Federal Reserve raises interest rates, says another rate increase possible

July 26 (UPI) -- Despite progress in the inflation fight, the Fed Wednesday raised interest rates by another 0.25 points, increasing the federal funds rate range to a 22-year high of 5.25% to 5.5%.

In a Wednesday afternoon statement, the Fed said inflation remains elevated and job gains have been robust while unemployment has remained low.

The Fed statement said it "seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent."

As it continues to monitor inflation there's a possibility of yet another interest rate hike ahead. The Fed said it will "continue to assess additional information and its implications for monetary policy."

The Fed said it would continue to reduce its holdings of Treasury securities and agency-backed mortgage securities and is "strongly committed to returning inflation to its 2% objective."

The Fed paused rate hikes in June, but made it known that more were likely later this year.

Wednesday's rate increase will make it harder still for consumers and business to afford loans. This is the 11th Fed interest rate increase since March 2022.

On July 12 U.S. inflation was the lowest since 2021. According to the Labor Department, headline inflation was 3% for the 12-month period ending in June.

Lorie Logan, a voting member at the Federal Reserve and the president of the central bank in Dallas, said that inflationary data and labor trends suggest further rate hikes may be necessary to cool the economy.

"The continuing outlook for above-target inflation and a stronger-than-expected labor market calls for more-restrictive monetary policy," she said in early July.

That backs late June comments from Federal Reserve Chairman Jerome Powell, who said that economic activity was expanding, but inflation remained above the 2% target rate set by the Fed.

"Inflation has moderated somewhat since the middle of last year," he said. "Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go."

The Fed acknowledged its decision raising interest rates again will have economic impact beyond inflation.

The Fed statement Wednesday after raising the rates said "The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation."

So-called core inflation, which strips out volatile prices for food and energy, was at 4.8% over the 12-month period to June.

Rate hikes -- there have been 11 over 12 policy meetings for the Fed -- are designed to make borrowing more prohibitive, though job and wage growth continue to create obstacles for policymakers.

The latest reading on consumer confidence, meanwhile, shows optimism is at the highest level since July 2021.

Dana Petersen, the chief economist at The Conference Board, said Tuesday that consumers remain upbeat, despite the hike in interest rates. Nevertheless, Petersen said a recession is likely before the end of the year.

That sentiment, despite improved confidence, was shared by consumers.

"Still, recession expectations remained below their recent peak, suggesting fears of a recession have eased relative to earlier this year," Petersen added.

The Fed is trying to avert a major recession by way of a so-called soft landing, which would avoid the widespread layoffs that would come from a sharp economic downturn. Touting his economic policy, dubbed Bidenomics, President Joe Biden said job prospects and the overall economy are in good shape despite the rate hikes from the Fed.

"Today, the U.S. has the highest economic growth rate leading the world economy since the pandemic, the highest in the world," he said. "We have 13.4 million new jobs. More jobs in two years than any president has done in four years. Folks, it's no accident. That's Bidenomics in action."

Markets were flat at the start of the trading day on Wall Street, with little to no movement in major stock market indices. Crude oil prices were slightly lower as tighter rate policies would crimp consumer demand.

Ed Moya, a senior market analyst with New York brokerage OANDA, said the Fed is likely to take a break after Wednesday to see how long-term trends play out.

"This should be an easy meeting for the Fed as they will raise rates and keep optionality for further tightening on the table," he said.