The Federal Reserve made a significant move on Wednesday as it hiked interest rates once again, reaching a 22-year high. Federal Reserve Chairman Jerome Powell announced the unanimous decision to raise rates by a quarter-point, bringing the benchmark federal-funds rate to a range between 5.25% and 5.5%. This marks the 11th increase in the past 12 meetings, following a brief pause last month. The hike brings the benchmark rate to its highest point since 2001, and Powell indicated that another increase could be possible before the end of the year as officials continue to grapple with stubbornly-high inflation.

Powell acknowledged that the process of lowering inflation to the target of 2% still has a long way to go. He stated that policy will need to remain at restrictive levels for some time, and further increases may be necessary if deemed appropriate. Powell also stated that Fed staff no longer predicts a recession, despite previously insisting that inflation was transitory before it reached a four-decade high. He mentioned that there is a noticeable slowdown in growth forecasted for later this year, but due to the economy's resilience, a recession is no longer expected.

Despite higher interest rates, the economy continues to outperform expectations, with job gains remaining robust and a low 3.6% unemployment rate. New data is expected to report a 1.8% annual pace of growth in the second quarter. Powell ruled out the possibility of cutting the fed rate this year, emphasizing that rates will only be cut when the Fed is comfortable with doing so.

Investors reacted calmly to the anticipated rate hike, with the Dow reaching its 13th consecutive session in the green, marking its best streak since 1987. However, the S&P 500 and Nasdaq closed slightly down. Kathy Bostjancic, chief economist at Nationwide, noted that the forward guidance remains unchanged, leaving the door open for further rate hikes if inflation does not continue to trend lower.

While the stock market remains positive, higher interest rates will result in increased costs for Americans when it comes to borrowing funds for homes, cars, and credit cards. The average credit card interest rate in the US is currently at its highest rate since 2019, making it more difficult for consumers to pay off their debt. Despite a slowdown in inflation, key measures of inflation remain more than double the Fed's target, presenting a challenge for policymakers.

The Federal Reserve is set to meet three more times this year, in September, November, and December. The decision on whether to raise rates further will depend on incoming data and how the economy, job market, and inflation data respond to the current policy shift. Powell emphasized the need for caution and patience as the Fed assesses the unfolding economic situation.