The US Federal Reserve on Wednesday, July 26, hiked its key interest rate by 25 basis point (bps), marking the 11th hike in the US central bank’s past 12 policy meetings. With this, the benchmark overnight interest rate has increased to 5.25 per cent-5.50 per cent, which is the highest level since 2001.
“The Committee (FOMC) seeks to achieve maximum employment and inflation at the rate of 2 per cent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy,” US Federal Reserve said in a statement.
After the US Federal Reserve’s decision, the US dollar fell against a basket of currencies on Wednesday. The dollar index fell 0.168 per cent at 101.130, with the euro up 0.19 per cent to $1.1074.
The US Fed said the US banking system is sound and resilient. 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 Committee remains highly attentive to inflation risks.
It also said the monetary policy committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments, in determining the extent of additional policy firming that may be appropriate to return inflation to 2 per cent over time.
As far as the Sensex and Nifty are concerned, the Indian equity market has already factored in a 25-bp hike. However, it was expecting a hint of a pause in future in the current rate hike cycle.
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