US Federal Reserve officials raised interest rates to their highest level in 22 years, continuing their 16-month-long campaign to wrestle inflation lower by cooling the American economy.

Officials pushed rates to a range of 5.25 to 5.5 per cent, their highest level since 2001, while leaving the door open to further rate increases in the statement announcing their unanimous decision.

Jerome H. Powell, the Fed chair, is scheduled to give a news conference to explain the move — and, potentially, to offer some hint at how the central bank is thinking about its next step.

Fed policymakers began to raise rates from near-zero in March 2022 and pushed them up rapidly last year before adjusting them more slowly in 2023, even pausing in June.

Because officials think that rates are now high enough to weigh on the economy, they have been moving more gradually to give themselves time to see how growth, the job market and inflation data are responding to the shift in policy.

Higher interest rates cool the economy by making it more expensive to borrow money, discouraging business expansions and making it more expensive to take out a mortgage or a car loan. But it takes time for them to trickle out through the economy, so the full effects of the moves so far likely have yet to be felt.

That makes it tough to gauge how high is sufficiently high. Policymakers want to make sure that they temper demand enough to put an end to rapid price increases, but they would prefer to avoid plunging the economy into a recession if they can avoid it.

Economists have recently become increasingly hopeful that the Fed might be able to slow inflation without causing an outright downturn, clinching what is often called a soft landing. Inflation has finally begun to subside notably at a time when hiring still remains strong and the unemployment is hovering at very low levels. In a nod to that resilience, officials noted on Wednesday that the economy is expanding at a “moderate” pace, an upgrade from “modest” in their June statement.

But Fed officials may not feel comfortable that inflation will return fully to their 2 per cent goal.

NYTNS