July 2022 | In a widely expected move, the US Federal Reserve hiked the fed funds rate by 75bp to 2.25-2.50%, its second consecutive 75bp rate hike. The fed funds rate is within the 2 to 3% range of estimates of the long-term “neutral” rate. However, as Chair Powell reminded us during his press conference, policy needs to go beyond neutral into restrictive territory this year in order to reduce inflation.
01 | On 27 July, the Fed hiked rates by 75bp to 2.25-2.50%, its second consecutive rate hike, bringing the Fed fund rate closer to its estimates of the neutral rate.
02 | The US entered into a technical recession as Q2 GDP contracted 0.9%, led by a visible deceleration in domestic demand.
03 | Importantly, the sharp US GDP deceleration was not completely a result of Fed tightening but was caused by other drags on US consumers.
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