Federal Reserve Issues Second Straight 0.75% Interest Rate Hike: The Important Signal It's Sending On Inflation

The Federal Reserve raised its target fed funds rate by 0.75% on Wednesday to a new range of between 2.25% and 2.5%, its second 0.75% rate hike in two months. The Fed said it will continue with its previously announced plan to let Treasury securities and agency debt and agency mortgage-backed securities roll off its balance sheet on a monthly basis.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed said in a statement.

The Fed reassured investors that job gains have been strong and the unemployment rate has declined, but noted spending and production rates have softened.

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The statement comes after the Labor Department reported the U.S. economy added 372,000 jobs in June, beating economist estimates of 250,000 jobs. The unemployment rate remained steady at 3.6%, and hourly wages were up 5.1% from a year ago.

All 12 Fed members voted unanimously for the 0.75% hike.

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The Consumer Price Index (CPI) was up 9.1% in June, the highest inflation reading since 1981. The bond market currently projects an 83.6% chance the fed funds rate will rise at least another 1% by the end of the year.

The SPDR S&P 500 ETF Trust SPY was higher by 1.3% on Wednesday following the announcement.