Fed softens tone, but will RBI?

After a brief pause last month, the US Federal Reserve (Fed) has hiked its policy rate by 25 basis points (bps).

- Rupali Sarkar

The federal funds rate now stands at 5.25-5.50%, the highest since 2001. The Fed’s rate decision is not surprising. Despite the recent drop in inflation in the US, it continues to remain above the central bank’s 2% target. Also, the labour market continues to remain tight.

The Fed’s commitment to price stability means the possibility of another rate hike this year is open. In fact, prior to the July meeting, the Fed dot plot projections were pencilling in two more rate hikes for 2023.