Volkswacht Bodensee - US Fed raises rates to highest level since 2001

The quarter percentage-point rise lifts the key lending rate to a range between 5.25 percent and 5.5 percent, the US central bank said, adding that it will "continue to assess additional information and its implications for monetary policy."

The rate-setting Federal Open Market Committee (FOMC) used similar language when it voted to hold rates steady in June, and the latest statement suggests that policymakers are mulling another pause at their next meeting in September.

However, the Fed also said it would assess a range of data points "in determining the extent of additional policy firming," which indicates they see more monetary tightening ahead.

At the previous FOMC meeting in June, the median forecast involved two additional rate hikes this year.

The latest quarter percentage-point rise, which was in line with analysts' expectations, is the Fed's 11th since it began an aggressive campaign of monetary tightening last March in response to rising prices.

- 'Soft' landing -

Although inflation has continued to fall since the decision in June to pause rate hikes, it remains above the Fed's long-term target of two percent -- suggesting more policy action may be needed.

Meanwhile, unemployment has remained close to historic lows, while economic growth for the first quarter was revised up sharply on resilient consumer spending data.

The positive economic news has increased the chances of a so-called "soft landing," in which the Fed succeeds in bringing down inflation by raising interest rates while avoiding a recession and a surge in joblessness.

Given the near-unanimity of expectations for a hike on Wednesday, analysts and traders will be closely scrutinizing Fed Chair Jerome Powell for signs of what the central bank might do next.

"Odds are that Powell will signal additional rate hikes are not off the table," Oxford Economics' chief US economist Ryan Sweet wrote in a note to clients.

- Fed officials backed hikes -

Many FOMC members have publicly backed more rate hikes this year -- especially if last month's encouraging inflation data proves to be temporary.

"Given how far we've come, it may make sense to move rates higher but to do so at a more moderate pace," Powell told a Congressional hearing after June's decision.

But he said at a banking conference in Portugal a few days later: "I wouldn't take, you know, moving to consecutive meetings off the table at all."

"I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target," Fed governor Christopher Waller told a banking conference in mid-July.

While investors had more or less priced a hike on Wednesday, they are less confident about the chances of another increase at the next Fed meeting in September.

Futures traders currently assign a probability of just over 20 percent that the FOMC will raise rates again in September, according to CME Group.

G.Schulte--BTB