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Lisa Parker

An editor at FOMOdrive

  • Jul 28, 2023
  • 2 min read

The US Federal Reserve collapsed the dollar by raising rates

FED, Powell taking desicion

On Wednesday, the dollar dropped in value following the Federal Reserve's announcement on interest rates.

As anticipated, the Federal Reserve increased the key rate to 5.50%.

The rate was the most elevated in over 22 years.

The Fed may conclude the process of tightening monetary policy.

At the conclusion of a two-day meeting on July 25-26, the US Federal Reserve increased its key rate by 25 basis points, bringing it to a range of 5.25-5.50% per annum. This decision was in line with what was anticipated. The rate is now higher than it was in 2006-2007 and has reached its highest point since January 2001, when it was 6%.

The Federal Reserve's accompanying statement was almost identical to the one released in June, with the only difference being the characterization of economic growth at the start of the release - it was changed from "modest" to "moderate", contrary to expectations of a possible recession.

The Fed stated that inflation is still high and job growth is steady. They also reminded that their goal is to reach an inflation rate of 2% in the long run.

Fed Chairman Jerome Powell stated at a press conference that, although inflation has decreased slightly, it is still far from the desired 2% target. Despite this, the demand for labor force continues to be much higher than the supply. It will take some time for the effects of the implemented measures to be fully realized.

The head of the Fed stated that the June CPI was a positive outcome, however, it was only a single month's report. If the data later on suggests that rates should be increased, then they will take the necessary action.

He noted that the Federal Reserve should observe a gradual decrease in inflation, particularly core inflation, but core inflation is still quite elevated. "We still have a long way to go," he said. A slower rate of rate increases does not necessarily mean a shift to "every other meeting."

Powell stated that inflation has been more resilient than anticipated, and he does not believe there will be a reduction in rates this year.

It is anticipated by most experts that the Federal Reserve's rate hike cycle will conclude following the June financial report.

Expectations that the July increase will be the last in this cycle were reinforced by the June inflation report and some macroeconomic data. June saw annual consumer price growth drop to 3%, the lowest since March 2021.

It is highly likely (77.2%) that the Federal Reserve will maintain the rate at its current level when they meet in September.

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