Final Fed hike of the cycle: 5.25-5.50%, Powell signals pause

The FOMC on July 26 2023 raised the target range 25 bps to 5.25-5.50%, the highest level in 22 years and the 11th hike of the cycle. Though no one knew it at the time, this would be the final hike. The committee retained optional language on further increases, but Powell's press conference struck a notably more data-dependent tone, acknowledging progress on inflation and emphasizing that policy was "restrictive."

Markets were muted on the day, reflecting the fully-priced nature of the hike. The S&P closed flat, Treasury yields declined modestly, and the dollar weakened. The VIX dropped to 13, a two-year low, reflecting declining macro uncertainty. The summer 2023 narrative of immaculate disinflation (inflation falling without meaningful labor market damage) was increasingly accepted by positioning.

The 525 bp tightening cycle from March 2022 through July 2023 was the fastest since 1980. The Fed would hold at 5.25-5.50% for 14 months through September 2024, making this one of the longest terminal-rate holds in modern Fed history. First rate cut arrived September 18 2024 (50 bps). The July 26 session thus represents a structural turning point in the post-pandemic policy cycle, even if markets did not fully recognize it in real time.