Despite sharp declines in wholesale and consumer inflation in recent months, the U.S. Federal Reserve said July 26 that it will raise federal interest rates another quarter point. The central bank had issued a rate increase every month since March 2022 until a one-month pause this past June.
The latest increase will move the Fed’s funds rate to 5.25-5.5% — the highest such rate in 22 years — as it looks to thwart inflation and ultimately return U.S. inflation to a rate of 2% over the long-term.
“Recent indicators suggest that economic activity has been expanding at a moderate pace,” the Fed’s Federal Open Market Committee release stated. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.”
The U.S. Producer Price Index for final demand increased just 0.1% in June year-over-year, showing that inflation continues to slow, the U.S. Bureau of Labor Statistics reported July 13. The increase in wholesale prices over the past 12 months slowed from 1.1% in May. June’s rate was the lowest reading since September 2020.
Meanwhile, the U.S. Labor Department reported July 12 that the Consumer-Price Index climbed 3% in June compared with a year earlier — its slowest pace in more than two years. That consumer inflation mark came in at just one-third of last summer’s roughly 9% peak, when the price of gasoline reached a record average of $5 per gallon.