Washington DC [US], September 16 (ANI): The US Federal Reserve has raised its benchmark interest rate by 25 basis points, marking its first rate increase since 2023, as policymakers respond to persistent inflationary pressures and changing economic conditions.
The Federal Open Market Committee (FOMC) increased the target range for the federal funds rate by a quarter percentage point to 3.75-4 per cent. The decision was approved unanimously by a 12-0 vote.
The rate increase was broadly in line with market expectations, with traders assigning an over 90 per cent probability to a 25-basis-point hike ahead of the decision.
“The Committee decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent, in support of the Federal Reserve’s dual mandate,” the FOMC said in its monetary policy statement.
The US central bank said inflation remained elevated and indicated that the latest policy action was aimed at supporting a faster return to its 2 per cent inflation goal.
“Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability,” it said.
The Fed said US economic activity was expanding at a solid pace despite continued uncertainty arising partly from geopolitical developments.
Domestic spending remained resilient, while productivity growth was strong and capital investment robust, according to the statement. Job additions kept pace with growth in the workforce, and the unemployment rate showed little change.
As part of implementing the decision, the Federal Reserve Board unanimously voted to raise the interest rate paid on reserve balances to 3.90 per cent, effective September 17.
The FOMC also directed the Federal Reserve Bank of New York’s Open Market Desk to undertake operations necessary to maintain the federal funds rate within the revised target range.
The standing overnight repurchase agreement rate was fixed at 4 per cent, while the overnight reverse repurchase agreement offering rate was set at 3.75 per cent, with a daily limit of USD 160 billion for each counterparty.
In a related decision, the Federal Reserve Board approved a 25-basis-point increase in the primary credit rate to 4 per cent, also effective September 17. The primary credit rate is the interest rate charged to eligible banks borrowing directly from the Federal Reserve. (ANI)
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