The Federal Reserve raised its target for short-term interest rates by a quarter of a percentage point on Wednesday and signaled that many more rate hikes are on the way as the central bank tries to crack down on skyrocketing inflation.
Driving news: The Federal Open Market Committee raised the federal funds rate to a range of 0.25% to 0.5%, the first rate hike since 2018. The median policymaker expects the rate to be 1.9 % at the end of the year, which implies a total of 7 rate hikes this year and 2.8% at the end of 2023.
- Fed leaders also raised their inflation projections.
By the numbers: The Fed’s median official predicted inflation for personal consumption spending would be 4.3% in 2022, up from 2.6% forecast in December.
- Excluding the volatility of food and energy, their median inflation forecast was 4.1%, up from 2.7% in December.
- Officials also revised their forecast for GDP growth and now expect the US economy to grow only 2.8% this year, down from December’s 4% forecast.
Progress: The Fed’s rate hike campaign is aimed at curbing skyrocketing inflation, tightening financial conditions and slowing growth. But the central bank faces risks on both sides. Rate hikes may be too small and too late, or they could jeopardize expansion.
- The war in Ukraine and associated commodity price increases, combined with closures linked to new COVID outbreaks in China, could create a bumpy year as the US faces supply shocks, high inflation, and tighter money.
- Already this year, mortgage rates and other longer-term rates rose in anticipation of a series of Fed rate hikes, acting as a brake on the economy.
What they are saying: “With adequate monetary policy tightening, the Committee expects inflation to return to the 2% target and for the labor market to remain strong,” policy makers said.
- The committee added that the implications of the invasion of Ukraine for the US economy “are very uncertain, but in the short term, the invasion and related events are likely to create further upward pressure on inflation and weigh on activity. economic “.
The Fed he also plans to tighten the money supply by reducing his balance sheet by $ 9 trillion and is likely to act on those plans “at a forthcoming meeting.”
An official disagreed. St. Louis Fed Chairman James Bullard preferred to raise interest rates by half a percentage point at this policy meeting, favoring a more aggressive start to the rate hike campaign.
What we are looking at: President Jerome Powell will answer media questions at a press conference at 2:30 PM EST.