Fed raises benchmark rate for the first time in three years

• The central bank raised its benchmark rate by 25 basis points, in line with market expectations.
• The previous target range stood at 3.50% to 3.75%.
• The decision was approved unanimously.
• The statement reiterates that "inflation remains elevated".
• Economic projections indicate marginally higher inflation and a marginally lower unemployment rate.

Traders had assigned a 90% probability to a rate increase today, and the Fed delivered, sidestepping a credibility crisis. The unanimous vote demonstrates genuine political independence, providing relief on several fronts. It also points to a continued collective willingness to tighten, setting up the remaining two meetings this year as particularly noteworthy. Currently, the market prices in 28 basis points of further tightening in 2023, up from 26 basis points before the decision.

The statement's reference to the US consumer carries a mildly hawkish tone, and the inflation observation persists. The US dollar gained broadly, as anticipated. Attention shifts to the long end of the Treasury curve for potential bidding activity. Early indications are encouraging: 10-year yields fell 4 basis points and 30-year yields dropped 5 basis points, both close to session lows, assisted by developments in oil markets today.

The statement said:

The Federal Open Market Committee approved the following statement for release by a 12 – 0 vote:

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 Committee is continuing its policy of maintaining ample reserves in the banking system.

Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little.

Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability.

The earlier statement read:

Economic output is growing at a steady rate, even with heightened uncertainty partly stemming from the conflict in the Middle East. Productivity and capital investment remain solid. Employment gains have matched workforce growth, while the jobless rate has seen little movement.

The difference is the inclusion of the phrase 'domestic spending has been resilient' and that point deserves attention.