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Another Raise — and Maybe More to Come

The Federal Reserve raised interest rates to a 22-year high—and left the door open for additional hikes.

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Key Takeaways

  • As expected, the Federal Open Market Committee (FOMC) increased the federal funds target rate by 25 basis points to a range of 5.25% to 5.50%.
  • This marked the 11th rate increase in 16 months, bringing rates to a 22-year high.
  • Fed Chair Jerome Powell said it’s too soon to declare victory in the central bank’s inflation fight.
  • Fed economists are no longer predicting a recession in 2023.

At their July meeting, Federal Open Market Committee (FOMC) members unanimously agreed to hike the fed funds rate by 0.25%, in line with market expectations. The latest hike raised the benchmark rate to a range of 5.25% to 5.50%.

FOMC expectations are for two more 25-basis-points hikes this year, but Chair Jerome Powell said any decisions will continue to be based on a variety of economic factors, including whether inflation is headed toward the Fed’s 2% target. Powell indicated there’s “a long way to go” before the Fed means its inflation goal.

“Inflation repeatedly has proved stronger than we and other forecasters have expected—and at some point that may change,” Powell said at his post-meeting news conference. “We have to be ready to follow the data and, given how far we’ve come, we can afford to be a little patient as well as resolute as we let this unfold.”

He added: “We’ve covered a lot of ground and the full effects of our tightening have yet to be felt.”

According to the CME FedWatch Tool, market expectations are for the Fed to keep the benchmark rate steady for the rest of the year.

The FOMC’s July statement contained only one notable change from the previous month, indicating the economy is picking up speed. Fed officials now see the economy as expanding at a “moderate” instead of a “modest” pace. In addition, Powell said the Fed’s economists no longer predict a recession this year.

Also in the statement, the committee reiterated its commitment to take “into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.”

Powell said he didn’t have specifics regarding the timing or size of any rate cuts, but he didn’t expect any in 2023.

“I’m saying we would we be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year, I don’t think it would be,” he said.

Below are the Fed statement language changes from June:

Source: FOMC as of 7/26/23.

Market Reaction

After the Fed announcement, the 10-year Treasury ended the day lower at 3.86%; short- and long-term rates were basically unchanged.

Source: FOMC as of 7/26/23.
10-Year Treasury Yield over the Past 12 Months
Source: FRED as of 7/26/23. U.S. Department of the Treasury as of 7/26/23.

Equities closed higher on the final day of the FOMC meeting. The Dow Jones Industrial Average finished up 0.23% higher for the day, and the S&P 500 Index closed slightly higher at 0.049%, despite being up 0.30% at the start of Powell’s news conference.

In conclusion

The FOMC meeting went largely as expected: a quarter-point interest-rate hike, a continued commitment to bring down inflation to 2%, and a reiteration that the Fed will make data-driven decisions on future hikes or cuts. Chair Powell also indicated that despite some optimistic signs, the battle to lower inflation was far from over, indicating the Fed might not be at the end of its hiking cycle.

Perhaps the biggest news out of the meeting was Powell’s statement that the Fed’s economists are no longer predicting a recession this year, something they and the vast majority of the market expected coming into 2023. This may be a sign that Fed policy, improved supply chains, and other economic factors are lining up to bring the economy in for a soft landing.


One basis point is equal to 0.01%.

The Dow Jones Industrial Average Index (DJIA) tracks the share price of the top 30 large, publicly-owned U.S. companies which is often used as an indicator of the overall condition of the U.S. stock market.

The S&P 500 index is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the U.S. stock market.

Any performance data quoted represent past performance, which does not guarantee future results. Index performance is not indicative of any fund’s performance. Indexes are unmanaged and it is not possible to invest directly in an index. For current standardized performance of the funds, please visit www.AristotleFunds.com.

The views expressed are as of the publication date and are presented for informational purposes only. These views should not be considered as investment advice, an endorsement of any security, mutual fund, sector or index, or to predict performance of any investment or market. Any forward-looking statements are not guaranteed. All material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The opinions expressed herein are subject to change without notice as market and other conditions warrant.

Investors should consider a fund’s investment goal, risks, charges, and expenses carefully before investing. The prospectuses contain this and other information about the funds. The prospectuses and/or summary prospectuses should be read carefully before investing.

Investing involves risk. Principal loss is possible.

Foreside Financial Services, LLC, distributor.

Bloomberg Finance L.P. is unaffiliated with Aristotle Capital, Aristotle Funds, their affiliates, their distributors, and representatives.

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