Jerome Powell explains decision to hike policy rate by 25 bps in July, responds to questions

Federal Reserve Chairman Jerome Powell comments on the policy outlook and responds to questions from the press following the US Federal Reserve (Fed) decision to hike the policy rate, federal funds rate, by 25 basis points (bps) to the range of 5.25-5.5%.

Follow our live coverage of the Fed's policy announcements and the market reaction.

Fed meeting press conference key quotes

"Inflation expectations remain well anchored."

"We're highly attentive to risks inflation poses to both sides of mandate."

"We have been seeing effects of increases on demand in most rate-senstive sectors."

"We haven't made any decisions about any future meetings."

"The inter-meeting data came in broadly in line with expectations."

"June CPI was welcome but was only one month's report."

"We believe monetary policy is restrictive."

"Stronger growth over time could add to inflation and may require a policy response."

"We're going to be careful about taking too much signal from a single reading on inflation."

"Will be looking to see if signal from June CPI is replicated."

"September decision could be another hike or remaining where we are."

"If we see inflation coming down credibly, we can move down to a neutral level and then below neutral at some point."

"There is a lot of uncertainty around the length of policy lags."

"No one should doubt that we will use tools to bring inflation to target."

"I would say policy is restrictive, more so after today's decision."

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The section below was published at 18:00 GMT, right after the FOMC released its monetary policy statement.

The US Federal Reserve (Fed) announced on Wednesday that it raised the policy rate, federal funds rate, by 25 basis points (bps) to the range of 5.25-5.5% following the July policy meeting. This decision came in line with the market expectation.

In its policy statement, the Fed reiterated that policymakers will continues to assess additional information and the implications for the policy.

Market reaction

With the immediate reaction, the US Dollar Index edged slightly lower but managed to hold above 101.00. Investors await FOMC Chairman Jerome Powell's press conference.

Meanwhile, the benchmark 10-year US Treasury bond yield holds steady at around 3.9% and the S&P 500 Index trades modestly lower on the day, losing 0.2%.

Following the decision, US interest rate futures price in an 18% probability of a 25 bps Fed hike in September and a 36.5% probability in November.

Key takeaways from the policy statement

"Inflation remains elevated, policy-setting committee remains 'highly attentive' to inflation risks."

"Recent indicators suggest economic activity has been expanding at a moderate pace."

"Committee is strongly committed to returning inflation to its 2% objective."

"Banking system is sound and resilient."

"Tighter credit conditions are likely to weigh on economic activity, hiring and inflation, extent to which remains uncertain."

"Will continue to reduce its bond holdings as described in previously announced plans."

"Vote in favor of policy was unanimous."

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This section below was published at 13:00 GMT as a preview of the Federal Reserve interest rate decision.

• Federal Reserve is widely expected to raise its policy rate by 25 bps to 5.25-5.50%.
• Fed has been struggling to convince markets that they will raise rates at least twice more this year.
• US Dollar valuation could be significantly impacted by Chairman Powell’s comments.

The Federal Reserve (Fed) is expected to raise its policy rate by 25 basis points (bps) to the range of 5.25%-5.5% on Wednesday, July 26 at 18:00 GMT. 

Following the release of the monetary policy statement, FOMC Chairman Jerome Powell will comment on the policy decisions and respond to questions in the post-meeting press conference, starting at 18:30 GMT.

The market positioning suggests that a 25 bps July hike is fully priced. Investors, however, are not so certain whether the US central bank will raise the policy rate again before the end of the year, even though the latest Summary of Projections (SEP) revealed that a majority of policymakers saw it appropriate to do so.  

Analysts at ANZ think that the terminal rate could be reached with a 25 bps hike in July:

“We expect the FOMC to raise interest rates by 25bps when it meets next week taking the fed funds target range to 5.25-5.50%. That would leave the policy rate in line with our terminal rate forecast.”

“There are signs core inflation is moderating. However, the extent is not clear making it difficult to assess whether it will sustainably track back to 2%. Financial conditions have eased, and uncertainty overhangs the lags with which Fed tightening works.”

Federal Reserve interest rate decision: What to know in markets on Wednesday, July 26

• The US Dollar Index, which tracks the USD’s performance against a basket of six major currencies,consolidates its recvent gains, holds above 101.00. 
• The benchmark 10-year US Treasury bond yield started the Fed week on a firm footing and climbed to 3.9% before stabilizing slightly below that level on Wednesday.
• Wall Street’s main indexes opened in negative territory following Tuesday's gains.
• On Thursday, the US Bureau of Economic Analysis will release the first estimate of the second-quarter Gross Domestic Product (GDP) growth. The US economy is forecast to expand at an annual rate of 1.8% in Q2, following the 2% growth recorded in the first quarter. 
• The European Central Bank (ECB) is expected to hike its key rates by 25 bps on Thursday.

FOMC speech tracker: Hawkish bias still in place

Federal Reserve officials had a relative hawkish bias in their speeches between their June and July meetings. After having paused interest rate hikes during June, Fed officials helped shape strong expectations of a return to hiking in July with their hawkish vocabulary, with some also hinting at the need for more than one rate hike. Fed Chair Jerome Powell was active with four appearances in this time, two in his semi-annual testimony in the US Congress, and then a couple more overseas in the ECB Forum and on the Bank of Spain in Madrid, mixing balanced with somewhat hawkish remarks. It will be interesting to see if the FOMC board members keep this tone after their meeting on Wednesday.

Date	Speaker	Result	Quote
Jun 16	Waller*	Dovish	Everything seems to be calm in US banking system
Jun 16	Barkin	Hawkish	Higher rates may create risk of more significant slowdown
Jun 20	Cook*	Hawkish	Cooling inflation is her main mission
Jun 20	Jefferson*	Balanced	Remain focused on returning inflation to 2%
Jun 21	Powell*	Hawkish	May make sense to move rates higher, at more moderate pace
Jun 22	Powell*	Balanced	Will be appropriate to raise rates again this year, perhaps two more times
Jun 22	Bowman*	Hawkish	Additional rate hikes needed to control inflation
Jun 22	Barkin	Dovish	Would support rate cuts when there is conviction inflation is heading down
Jun 23	Daly	Balanced	Two more rate hikes this year a very reasonable projection
Jun 28	Powell*	Balanced	We believe there's more restriction coming, driven by labor market
Jun 29	Powell*	Hawkish	A strong majority of Fed policymakers expect two or more rate hikes by year end
Jun 29	Bostic	Dovish	I don't see as much urgency to move as stated by others
Jul 5	Williams*	Hawkish	Slowing down on rate rises makes sense right now
Jul 7	Goolsbee*	Dovish	It is clear job market is strong but cooling
Jul 10	Barr*	Hawkish	We have made a lot of progress on inflation
Jul 10	Mester	Hawkish	Will need to tighten somewhat further to lower inflation
Jul 10	Daly	Balanced	We are likely to need a couple more rate hikes this year
Jul 12	Kashkari*	Hawkish	Entrenched inflation could prompt further rate hikes
Jul 12	Barkin	Hawkish	Inflation is still too high
Jul 13	Waller*	Hawkish	Jobs, economic strength give Fed space to hike further
Jul 13	Daly	Hawkish	Too early to say we have declared victory on inflation

*Voting members in 2023.

FOMC speech counter

	TOTAL	Voting members	Non-voting members
Hawkish	12	8	4
Balanced	5	3	2
Dovish	4	2	2

This content has been partially generated by an AI model trained on a diverse range of data.

When is the Fed meeting and how could it affect EUR/USD?

The Federal Reserve is scheduled to announce its interest rate decision and release the monetary policy statement this Wednesday, July 26, at 18:00 GMT. This will be followed by the post-meeting FOMC press conference at 18:30 GMT. Investors expect the Fed to lift the policy rate by 25 bps but remain skeptical about additional rate increases later in the year.

Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3% on a yearly basis in June from 4% in May, the US Bureau of Labor Statistics (BLS) reported earlier in the month. The Core CPI inflation, which excludes volatile food and energy prices, dropped to 4.8% from 5.3% in the same period. On a monthly basis, the CPI and the Core CPI both rose 0.2% but these figures fell short of analysts' estimates. 

Following softer-than-expected CPI figures, markets scaled back on hawkish Fed bets and the probability of two more rate increases this year, according to the CME Group FedWatch Tool, dropped to 20% from nearly 40% ahead of the June inflation report.  

The US Dollar Index (DXY), which tracks the USD’s performance against a basket of six major currencies, came under heavy bearish pressure and lost nearly 3% in the first two weeks of July. Supported by upbeat Initial Jobless Claims and PMI surveys, DXY managed to stage a rebound ahead of the FOMC policy meeting.

Since a 25 bps hike is already priced in, any hints regarding future rate decisions could drive the USD’s valuation. In case the policy statement reiterates policymakers willingness to raise rates again before the end of the year, the USD could gather further strength. On the flip side, an acknowledgment of softening inflation and worsening growth outlook could be seen as a dovish tone and have the opposite effect on the currency.  

Previewing the possible market reaction to the Fed decisions, “falling inflation and worries about global growth leave a narrow probability of Powell signaling the bar is now high for further increases,” says FXStreet Analyst Yohay Elam and continues:
“He would remain data dependent but with the burden of proof on moving to the hawks. In such a scenario, the US Dollar would decline sharply, while Gold and stocks would party. Any hangover would have to wait.”  

Eren Sengezer, European Session Lead Analyst at FXStreet, shares his outlook for EUR/USD heading into the all-important Fed meeting:

“A confirmation of one more 25 bps hike after July rate increase could force EUR/USD to stay on the back foot. Especially after the data from Germany and the Eurozone highlighted the loss of momentum in the European economy, reviving concerns over a recession, which could put the European Central Bank (ECB) in a tough spot with regard to further policy tightening. A neutral/dovish Fed tone could hurt the USD and help EUR/USD edge higher but an extended uptrend could be hard to come by before investors see what the ECB has to say on Thursday.”

Eren also outlines the near-term technical developments for the pair:

“EUR/USD faces interim support at 1.1000 (psychological level) before 1.0950 (ascending trend line coming from early June). In case the pair makes a daily close below the latter, 1.0900 (50-day Simple Moving Average (SMA), 100-day SMA) could be tested next.”

“On the upside, 1.1100 (static level, psychological level) aligns as first resistance before 1.1200 (psychological level) and 1.1275 (multi-year high set on July 18). It’s also worth mentioning that the Relative Strength Index (RSI) indicator on the daily chart declined to 50, suggesting that the pair completed the downward correction before deciding on the next directional movement.”