The Federal Reserve raised its target interest rate by three-quarters of a percentage point to a range of 3.00%-3.25% on Wednesday and signaled more large increases to come in new projections showing its policy rate rising to 4.40% by the end of this year before topping out at 4.60% in 2023 to battle continued strong inflation.
The U.S. central bank’s quarterly economic projections, meanwhile, showed the economy slowing to a crawl in 2022, with year-end growth at 0.2%, rising to 1.2% in 2023, well below the economy’s potential. The unemployment rate is projected to rise to 3.8% this year and 4.4% in 2023. Inflation is seen slowly returning to the Fed’s 2% target in 2025.
Rate cuts are not foreseen until 2024.
The federal funds rate projected for the end of this year signals totals rate hikes of another 1.25 percentage points to come in the Fed’s two remaining policy meetings in 2022, a level that implies another 75-basis-point hike in the offing.
“The committee is strongly committed to returning inflation to its 2% objective,” the Fed said in a statement announcing its third consecutive 75-basis-point hike, which is considerably higher than the quarter-percentage-point increases typical of the Fed.
The Fed “anticipates that ongoing increases in the target range will be appropriate,” the statement from its policymaking Federal Open Market Committee said, repeating language from its previous statement in July.
The updated projections point to an extended Fed battle to quell the highest bout of inflation since the 1980s, and one that potentially pushes the economy at least to the borderline of a recession.
Source: stocksharks
