Fed raises rates 25 basis points to 3.75%-4.00% as inflation stays high
On September 16, the Federal Open Market Committee increased the federal funds target range by 25 basis points to 3.75%–4.00%. The move marks the first rate hike after a series of cuts, with the Fed citing inflation that Chair Kevin Warsh described as “too high and has been for too long.”
Effective September 17, the Fed adjusted its administered rates in lockstep, raising interest on reserve balances from 3.65% to 3.90% and the overnight reverse repo rate from 3.50% to 3.75%. Both the primary credit (discount) rate and the Standing Repo Facility rate were set at 4.00%. Before the hike, the effective federal funds rate traded at 3.63%, just below an IORB of 3.65% and within the prior target range of 3.50%–3.75%.
“too high and has been for too long,” Kevin Warsh, Fed Chair said.
Prior to this increase, the FOMC had reduced rates over several meetings to support economic activity amid softer inflation readings. The Committee’s decision reflects its dual mandate to maintain price stability and maximum sustainable employment, which shifted toward inflation control this week.
What we know
On September 16, the FOMC raised the federal funds target range by 25 basis points to 3.75%–4.00%.
Effective September 17, IORB rose from 3.65% to 3.90%, ON RRP rose from 3.50% to 3.75%, and the primary credit and SRF rates moved to 4.00%.
On the last full day before this week’s hike, the effective federal funds rate printed at 3.63% against an IORB of 3.65% and a target range of 3.50%–3.75%.
The FOMC consists of 12 voting members: seven Governors and five of the twelve regional Reserve Bank presidents.
The Fed’s dual mandate is price stability and maximum sustainable employment.