The Federal Reserve increased its main policy rate by 0.75% for the second time in a row. This is the United States’ fourth rate hike of 2022, increasing the benchmark interest rate to a target range of 2.25% to 2.50%.

The Federal Open Market Committee (FOMC) said in its statement, “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

The FOMC, which sets the main policy rate, voted unanimously on the 75 basis point hike. It declared its commitment to returning inflation to its target of 2%. Inflation continues to rise south of the border with the US annual inflation rate in June reaching a 41-year high of 9.1%.

The Federal Reserve expects inflation will be at 5.2% by the end of 2022. In conclusion - it could be a while before the 2% target is reached.

Is the US set for a recession?

The threat of a recession looms large with official data on the US economy expected to show two consecutive quarters of contraction. This would put the US in a “technical recession.”

Today’s 0.75% hike was widely expected by economists. Following the announcement, the market is pricing a 35% chance of another 75 basis point increase at the Federal Reserve’s next meeting on September 21.

The market is also currently pricing in three more rate hikes by the end of this year. The year end implied rate is between 3.00% and 3.50%.

The Cash Management Group is committed to staying on top of interest rates in the US and Canada to provide their clients with the most up-to-date information and effective interest rate hedging solutions. If you have any questions about today’s Market Update, you can call us at 604-643-0101 or email cashgroup@cgf.com