Federal Reserve officials raised interest rates by 75 basis points for the third consecutive time and forecast that they would reach 4.6% in 2023intensifying their fight to curb inflation, which persists near the highest levels since the 1980s.
In a statement this Wednesday, after a two-day meeting in Washington, the Federal Open Market Committee repeated that “it is very attentive to the risks of inflation.” The central bank also reiterated that it “anticipates that continued increases in the target range will be appropriate” and “he is strongly committed to returning inflation to his 2% target”.
President Jerome Powell will give a press conference at 2:30 PM.
The decision, which was unanimous, raises the target range for the benchmark federal funds rate from 3% to 3.25%, the highest level since before the 2008 financial crisis, and from near zero earlier this year.
Officials expect the benchmark rate to rise to 4.4% by the end of the year and to 4.6% through 2023, according to the median estimate in the updated quarterly projections released alongside the statement. That indicates that a fourth consecutive increase of 75 basis points could be on the table for the next meeting in November.about a week before the US midterm elections.
Going forward, rates are expected to decline to 3.9% in 2024 and 2.9% in 2025.
The projections, which showed a steeper rate path than officials presented in June, underscore the Fed’s determination to cool inflation despite the risk that rising borrowing costs could push the US into a recession.
Before the release, traders had expected rates to hit 4.5% in early 2023 before falling around half a point by the end of the year.
Powell and his colleagues, criticized for a slow initial response to mounting price pressures, have aggressively pivoted to catch up and are now implementing the most aggressive policy tightening since the Fed under Paul Volcker four decades ago.
Updated forecasts also showed an increase in unemployment to 4.4% by the end of next year and the same at the end of 2024compared to 3.9% and 4.1%, respectively, in the June projections.
The estimates of economic growth in 2023 were reduced to 1.2% and 1.7% in 2024reflecting a larger impact of tighter monetary policy.
Inflation peaked at 9.1% in June, as measured by the 12-month change in the US consumer price index. But it failed to drop as fast in recent months as Fed officials had hoped: in August, it was still 8.3%.
Meanwhile, the Job growth has remained strong and the unemployment rate, at 3.7%, remains below levels that most Fed officials consider sustainable. long-term.
The failure of the labor market to soften has added to the impetus for a more aggressive tightening path at the US central bank.
The Fed’s action is also coming against the backdrop of other central banks tightening to deal with price pressures that have spiked around the world. Collectively, about 90 have raised interest rates this year, and half of them have raised at least 75 basis points in one fell swoop.