The Federal Reserve raises interest rates to the highest level since 2001

GCC central banks followed suit and raised interest rates by 25 basis points
The Federal Reserve raises interest rates to the highest level since 2001
Federal Reserve

The Federal Reserve raised interest rates by 25 basis points to their highest level since 2001, to a range between 5.25 percent and 5.50 percent.

The Federal Reserve paused raising interest rates in June for the first time in 15 months, marking the eleventh increase since March 2022 with this new hike.

According to the statement issued by the Federal Reserve, the approved increase “comes as part of its efforts to tame inflation, which remains far from the target set at 2 percent, despite its slowdown.”

The statement stressed that the committee will continue to monitor the implications of the data received on the economic outlook, and will be ready to adjust the monetary policy stance appropriately if risks arise that may hinder the achievement of its objectives of returning inflation to the target level to which it is strongly committed.

Read: U.S. inflation is slowing down, still far from the Federal Reserve’s target

The committee is scheduled to meet in September after the summer vacation season break in August, which means more time to monitor the economic data released until the meeting to determine the next step.

Federal Reserve Chairman Jerome Powell kept the door open for upcoming increases just as markets considered it to be the final one.

“We are ready for additional rate hikes if necessary,” he said at a press conference after the meeting of the committee he chairs, explaining that “all options are open at the next September meeting.”

He linked this to saying that inflation remains high, well above the 2 percent target, explaining that “headline inflation has fallen significantly but core inflation is the opposite.” At the same time, he offered the possibility of “fixing interest rates for some time,” stressing that “we are not going to cut rates this year.”

He pointed out that consumer activity is growing, but at a pace that is not fast, explaining that there are signs of a balance of supply and demand in the labor market.

He also explained that it would take time for the full impact of the interest hikes to be felt.

The Federal Reserve’s decision caused the dollar to fall against a basket of currencies. The dollar index fell 0.168 percent to 101.130 with the euro rising 0.19 percent to $1.1074.

U.S. crude futures fell 1.07 percent to $78.78.

GCC Central Banks

Central banks in Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain announced interest rates of 25 basis points.

The Saudi central bank said in its statement that it was raising key interest rates by 25 basis points.

The UAE central bank also said in a statement that it would raise the base rate on overnight deposit facilities by 25 basis points to 5.40 percent from 5.15 percent on Thursday.

The Central Bank of Bahrain raised the one-week and overnight deposit rate by 25 basis points.

Qatar’s central bank raised policy rates by 25 basis points.

For more on banking and finance, click here.