The Federal Reserve made history Wednesday and approved a third consecutive 75 basis point rate hike in an aggressive move to tackle Hot inflation has plagued the US economy.
A mega rate hike that the market failed to comprehend just a few months ago has raised the central bank’s benchmark lending rate to a new target range of 3% to 3.25%. This is the highest fed funds rate since the 2008 global financial crisis.
Wednesday’s decision marks the Fed’s toughest policy move to combat inflation since the 1980s. It could also create financial pain for millions of American businesses and households by pushing up borrowing costs for homes, cars, credit cards, and more.
Federal Reserve Chairman Jerome Powell acknowledged the economic pain this rapid tightening regime could cause.
Powell said in a press conference following the central bank’s policy announcement after the two-day monetary policy meeting, “I wonder if this process will lead to a recession, and if so, how severe that recession will be. No one knows what it will be,” he said.
The Federal Reserve’s latest economic forecast summary, released Wednesday, reflects that pain. The quarterly report shows the outlook for economic growth and the labor market is less than optimistic, with the median unemployment rate rising to his 4.4% in 2023 and his 3.9% for the Federal Reserve. is higher than Officials said he predicted in June, and now he is significantly higher than the 3.7%.
US gross domestic product, a key indicator of economic output, was revised down to 0.2% from 1.7% in June. This is well below analyst expectations. Bank of America economists had predicted that GDP he would be revised to 0.7%.
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Inflation expectations also rose. Core consumer spending, the Fed’s favorite measure of inflation, is expected to hit 4.5% this year and 3.1% in 2023, according to the Federal Reserve’s SEP. is expected to reach This is up from his June forecast of 4.3% and his 2.7% respectively.
Perhaps most important to investors looking for forward guidance from the Fed is the Fed funds rate forecast. Figures released Wednesday showed that the Federal Reserve expects interest rates to continue rising over the next few years.
The median federal funds rate forecast for 2022 has been revised upwards to 4.4% from 3.4% in June. This figure will rise to 4.6% from 3.8% in 2023. Also, interest rates in 2024 were raised to 3.9% from 3.4% in June and are expected to remain high at 2.9% in 2025.
Overall, the new projections point to a heightened risk of a hard landing in which monetary policy tightens and triggers a recession. It also provides evidence that the Fed is willing to take the “pain” of economic conditions to bring down persistent inflation.
According to Moody’s Analytics, higher prices mean consumers are spending about $460 more on groceries each month than this time last year. Yet the job market remains strong, as does consumer spending. Home prices have remained high in many areas, even as mortgage rates have risen significantly. That means the Federal Reserve may feel the economy can accommodate more aggressive rate hikes.