Federal Reserve Increases United States Interest Rates to Highest Level in 22 Years

On July 26, 2023, the Federal Reserve increased its benchmark interest rate by a quarter of a percentage point to the highest level in 22 years as it opened the door for additional increases later in 2023. 

The Federal Open Markets Committee increased the federal funds rate to a new target range of 5.25% to 5.5% with unanimous support. Over the last year, the Fed has pursued a slightly hawkish monetary policy. 

The increase ushered in on June 26 came after a temporary delay on rate hikes at the previous FOMC meeting. In that instance, the FOMC kept the benchmark rate steady. Additionally, at the time, Fed chair Jay Powell noted that the central bank would pursue a more gradual approach to rate hikes in order to temper the effects of months of previous interest rate increases. 

The FOMC issued a statement where it declared that inflation has stayed “elevated”, while jobs increases in recent months had been “robust” and economic activity was increasing “at a moderate pace.” The committee stated that it remained “highly attentive to inflation risks”, and would “continue to assess additional information and its implications for monetary policy”. In a press conference after the decision was made, Powell did not comment on whether the Fed would raise rates again at its next meeting slated for September. “I would say it is certainly possible that we would raise funds again at the September meeting if the data warranted,” he stated. “And I would also say it’s possible that we would choose to hold steady at that meeting. We’re going to be making careful assessments . . . meeting by meeting.”

 “We have covered a lot of ground and the full effects of our tightening have yet to be felt,” Powell stated, continuing by noting that the committee would “take a data-dependent approach” to figure out whether additional rate increases were necessary.

Powell proclaimed that it was “a good thing” that the Fed’s rate hikes had managed to “achieve disinflation . . . without any meaningful negative impact on the labor market”. But he cautioned that “stronger growth could lead over time to higher inflation”, forcing the central bank to pursue restrictive monetary measures. “What our eyes are telling us is that [monetary] policy has not been restrictive enough for long enough to have its full desired effect.” 

That said, Powell was optimistic that the Fed would be able to carry out a “soft landing”, calling attention to how the central bank’s economists no longer believe the US economy will enter a recession. “The staff now has a noticeable slowdown in growth starting later this year in the forecast,” he stated. “But given the resilience of the economy recently they are no longer forecasting a recession.” 

It’s anyone’s guess if the US will actually enter a recession. One thing is clear though: central banking is one dangerous mistress. No more what kind of monetary policies a given central bank pursues — easy or hard money, the likelihood for economic dislocations to take place is very high. Those are the dangers of having a centralized institution setting interest rates, when bottom-up market processes are generally better at establishing interest rates. 

Ultimately, the key to avoiding the predictable economic suffering that comes about as a result of central bank manipulation is through the abolition of central banking and the introduction of a free market monetary system. 

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