Fed Raises Rates by 75 Basis Points at June FOMC Meeting

The Federal Open Market Committee (FOMC) voted to raise the Federal Funds rate by 75 basis points at its meeting held June 14-15, 2022. Investopedia News OnWednesday,theFederalOpenMarketCommittee(FOMC)votedtoraiseitsbenchmarkFederalFundsrateby75basispoints(bps)toarangeof1.5%to1.75%,itslargestratehikeforasinglemeetingdatingbackto1994.TheinterestratedecisioncappedofftheFederalReserve’stwo-dayJunepolicymeeting,wheretheU.S.centralbankwaswidelyexpectedtoraiseinterestrates. TheFederalReservehasdecisivelypivoteditspolicystanceinrecentmonthstoaddressrisinginflation.ConsumerPriceIndex(CPI)inflationacceleratedtoanew40-yearhighof8.6%inMay,surpassingtheprevioushighof8.5%setinMarch.Thelatestreadingindicatedthatinflationrateshavenotyetpeaked,withmoreaggressiveactionbytheFederalReserverequiredtotamesurginginflation.Thecurrentrateof8.6%ismorethanfourtimestheFed’slong-runinflationtargetof2%. KeyTakeaways TheFederalOpenMarketCommittee(FOMC)votedtoraisetheFederalFundsrateby75basispointsatitsmeetingheldJune14-15,2022. Thenation'scentralbankcitedelevatedinflationlevels,currentlyrunningat40-yearhighs,astheprimaryreasonfortherateincrease.FederalReserveofficialsarenowprojectingayear-endFederalFundsrateof3.4%,farexceedinginitialprojectionsof1.9%madeinMarch. PreviousRateHikes AfterholdingitsbenchmarkFederalFundsrateatrecordlowlevelsthroughout2020and2021,inresponsetotheeconomiceffectsoftheCOVID-19pandemic,theFedconducteditsfirstratehikesinceDecemberof2018inMarch.Theinitial25-bphikeinMarchwasfollowedbya50-bpincreaseinMay,afterpricepressuresshowednosignofpeaking.  Expectationsforaratehikeof75bpsroseinthedaysleadinguptotheJuneFOMCmeeting,astheCMEGroup’sFedWatchToolshoweda90%probabilityof75-bpincreaseearlyintheweek.MarketsadjustedtheirexpectationsfollowingtheBureauofLaborStatistics’inflationreporttrackingconsumerprices. Near-UnanimousVote Thedecisiontoraiseratesbythree-quartersofapercentagepointwasnearlyunanimous,withthesoleopposingvotecomingfromKansasCityFedPresidentEstherGeorge,whopreferredasmaller50basispointincrease. ExpectationsforFutureMeetings Fortheremainderoftheyear,theFederalReserveisexpectedtocontinuewithanaggressiverate-settingagenda,with50basispointhikesexpectedatupcomingmeetingsinJulyandSeptember.FedChairJeromePowellhasreiteratedthatcombattinghighlevelsofinflationremainsatoppriorityfortheU.S.centralbank. FederalReserveofficialsarenowprojectingayear-endFederalFundsrateof3.4%,substantiallyhigherthaninitialprojectionsof1.9%madeinMarch.Lookingaheadpast2022,theFedforecastsalong-runrateof3.8%,whichwouldmarkthehighestleveldatingbackto2007.Meanwhile,thenation’scentralbankdrasticallylowereditsgrowthoutlookfortheU.S.economyin2022,toaprojectedgrowthrateof1.7%comparedtoinitialestimatesof2.8%inMarch. Initslong-runinflationoutlook,theFOMCwasmoreoptimistic,expectingheadlineinflationtosubsideto2.6%in2023,withacorrespondingcoreinflationrateof2.7%.TheseprojectionswerelittlechangedfromMarch. However,Fedofficialsaddedthatthecentralbankmayneedtoremainnimbletoadaptpolicytochangingconditions.“TheCommitteewouldbepreparedtoadjustthestanceofmonetarypolicyasappropriateifrisksemerge,”asnotedinarelease. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. BoardofGovernorsoftheFederalReserveSystem."PressRelease:June2022FOMCMeeting" CMEGroup."CountdowntoJune2022FOMCMeeting:TargetRangeProbabilities" BoardofGovernorsoftheFederalReserveSystem."MeetingCalendars,Statements,andMinutes2017-2022" CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedArticles News TheFed'sInflationFight EconomicNews MarketsExpect50-Basis-PointFedRateHikeinMay2022 PersonalFinanceNews CDRateTrends,WeekofJune13,2022 PersonalFinanceNews CDRateTrends,WeekofJune6,2022 EconomicNews MarketsExpect25-Basis-PointFedRateHikeinMarch2022 MarketsNews FedHikesRates25BasisPointsatMarch2022Meeting PartnerLinks RelatedTerms WhatIstheFederalOpenMarketCommittee(FOMC)? TheFederalOpenMarketCommittee(FOMC)isthebranchoftheFederalReserveSystemthatdeterminesthedirectionofmonetarypolicy. more ForwardGuidanceDefinition Forwardguidancereferstothecommunicationfromacentralbankaboutthestateoftheeconomyandlikelyfuturecourseofmonetarypolicy. more FederalReserveSystem(FRS) TheFederalReserveSystem,commonlyknownastheFed,isthecentralbankoftheU.S.,whichregulatestheU.S.monetaryandfinancialsystem. more TargetRateDefinition Atargetrateisakeyinterestratethatacentralbanktargetstoguidemonetarypolicy. more OpenMouthOperations OpenmouthoperationsarespeculativestatementsmadebytheFederalReservetoinfluenceinterestratesandinflation. more FederalFundsRate ThefederalfundsrateisthetargetinterestratesetbytheFedatwhichcommercialbanksborrowandlendtheirextrareservestooneotherovernight. more