Washington, Sep 21 (BUS): The Federal Reserve raised its target interest rate by three-quarters of a percentage point to the 3.00%-3.25% range on Wednesday and signaled further significant increases in new expectations showing its policy rate. It rose to 4.40% by the end of this year before reaching 4.60% in 2023 to fight continued strong inflation.
Meanwhile, the US central bank’s quarterly economic forecast showed the economy slowing to a crawl in 2022, with year-end growth of 0.2%, rising to 1.2% in 2023, well below the economy’s potential, Reuters reports.
The unemployment rate, currently at 3.7%, is expected to rise to 3.8% this year and to 4.4% in 2023. Inflation is expected to slowly return to the Federal Reserve’s 2% target in 2025.
Price cuts are not expected until 2024.
US stocks pared gains after the release of the policy statement while the dollar recorded two new contracts against a basket of currencies.
In the US Treasury market, which plays a key role in transmitting Fed policy decisions to the real economy, yields on two-year bonds are at their highest since 2007. The yield on 10-year notes has also risen to a level not seen since 2011.
The projected fed funds rate for this year’s end points to another 1.25 percentage points in rate hikes at the Fed’s two remaining policy meetings in 2022, a level that would imply another 75 basis points increase in the near future.
In a statement announcing its third consecutive increase of 75 basis points, the Fed said, “The Committee is firmly committed to returning inflation to its 2% target,” well above the US central bank’s usual quarter-percentage point increases. bank.
The Fed “expects that continued increases in the target range will be appropriate,” a statement from the Federal Open Market Committee’s policymaking said, echoing language from its previous statement in July.
The updated forecast points to an extended battle by the Fed to quell the highest bout of inflation since the 1980s, and one that will likely push the economy at least into recession.
The Federal Reserve said that “recent indicators point to modest growth in spending and production,” but the economy is still slowing to a near crawl this year, with year-end growth of just 0.2%.
“The Fed was late in recognizing inflation, late in raising interest rates, and late in starting to cancel bond purchases. They’ve been playing catch-up ever since. And they’re not over yet,” said Greg McBride, chief financial officer. Analyst at Bankrate.
Meanwhile, the rise in the unemployment rate from 3.8% at the end of 2022 to 4.4% at the end of 2023, is half a percentage point higher than the rise in the unemployment rate that was associated with the previous recession.