Fed Delivers Third-Straight Big Hike, Sees More Increases

Federal Reserve officials raised interest rates by 75 basis points for the third consecutive time and forecast they would reach 4.6% in 2023, stepping up their fight to curb inflation that’s persisted near the highest levels since the 1980s.

In a statement Wednesday following a two-day meeting in Washington, the Federal Open Market Committee repeated that it “is highly attentive to inflation risks.” The central bank also reiterated it “anticipates that ongoing increases in the target range will be appropriate,” and “is strongly committed to returning inflation to its 2% objective.”

At 2:30 pm, Chair Jerome Powell will host a press conference.

The decision, which was unanimous, takes the target range for the benchmark federal funds rate to 3% to 3.25% — the highest level since before the 2008 financial crisis, and up from near zero at the start of this year.

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According to updated quarterly projections, officials expect that the benchmark rate will rise to 4.4% at year-end and 4.6% in 2023. This means that a fourth consecutive 75-basis-point increase could be in the cards for November’s next gathering, which is about one week before midterm elections.

In the future, rates could fall to 3.9% and 2.9% respectively in 2024-2025.

The projections, which showed a steeper rate path than officials laid out in June, underscore the Fed’s resolve to cool inflation despite the risk that surging borrowing costs could tip the US into recession.

Trading houses had expected that rates would reach 4.5% by early 2023, before dropping about half a point at the end.

Powell and his associates were criticised for slow responses to increasing price pressures. However, they have jumped quickly to catch up. Now, Powell is delivering the most aggressive tightening of policy since Paul Volcker was four decades ago.

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The updated forecasts also showed unemployment rising to 4.4% by the end of next year and the same at the end of 2024—up from 3.9% and 4.1%, respectively, in the June projections.

Economic growth estimates in 2023 were 1.2%, and 1.7% respectively in 2024. This is due to a greater effect of tighter monetary policy.

The 12-month change of the US consumer price index measured inflation’s peak at 9.1%. But it’s failed to come down as quickly in recent months as Fed officials had hoped: In August, it was still 8.3%.

The Fed has not seen any significant slowdown in job growth and, as such, the 3.7% unemployment rate is below the levels that Fed officials believe to be more sustainable over the long-term.

Due to the failure to see a softening in the labor market, the US central banks has been more aggressive with tightening.

Fed actions are also being taken against the background of other central banks tightening to meet rising price pressures around the world. Some 90 banks collectively raised interest rates last year. More than half have increased by 75 basis points.

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