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Federal Reserve Authorizes Interest Hike, Raising Rates to Highest level in over 22 years

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The Federal Reserve authorized a much-anticipated interest rate raise on Wednesday, bringing benchmark borrowing prices to their highest level in more than 22 years.

The Federal Open Market Committee hiked its funds rate by a quarter percentage point to a target range of 5.25%-5.5%, a move that financial markets had fully factored in. The midpoint of that goal range would be the benchmark rate's highest level since early 2001.

Investors were looking for clues that this may be the last rise before the Fed takes a break to assess how prior hikes are affecting economic conditions. Although officials suggested at their June meeting that two rate hikes are on the way this year, markets have priced in a better-than-even chance that no more movements would be made this year.

Chairman Jerome Powell said at a press conference that inflation has eased slightly since the middle of last year, but that reaching the Fed's 2% objective “has a long way to go.” Nonetheless, he seemed to leave leeway for the Fed to maintain rates constant at its next meeting in September.

“I would say it’s certainly possible that we will raise funds again at the September meeting if the data warranted,” said Powell. “And I would also say it’s possible that we would choose to hold steady and we’re going to be making careful assessments, as I said, meeting by meeting.”

Powell stated that the FOMC will consider “the totality of the incoming data,” as well as its implications for economic activity and inflation.

Following the conference, markets initially rose, but finished neutral. The Dow Jones Industrial Average extended its winning run to 82 points, although the S&P 500 and Nasdaq Composite were barely changed. Treasury yields have fallen.

“It is time for the Fed to give the economy time to absorb the impact of past rate hikes,” said Joe Brusuelas, U.S. chief economist at RSM. “With the Fed’s latest rate increase of 25 basis points now in the books, we think that improvement in the underlying pace of inflation, cooler job creation and modest growth are creating the conditions where the Fed can effectively end its rate hike campaign.”

The post-meeting statement, on the other hand, provided only a hazy indication of what will drive the FOMC's future movements.

“The Committee will continue to assess additional information and its implications for monetary policy,” the statement said in a line that was tweaked from the previous months’ communication. That parallels a data-driven strategy, rather than a fixed plan, that nearly all central bank officials have supported in recent public pronouncements.

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