(Bloomberg) — Federal Reserve officials raised interest rates by 75 basis points for the third time in a row and forecast they would reach 4.6% in 2023, stepping up their fight to curb US inflation that remains near record levels. height since the 1980s.
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Wednesday’s unanimous decision by the Federal Open Market Committee raises the target range for the benchmark federal funds rate to a range of 3% to 3.25% – the highest since before the 2008 financial crisis, and up from near zero at the beginning of this year.
In a statement after a two-day meeting in Washington, officials led by Chairman Jerome Powell reiterated that they are “extremely cautious about inflationary risks.” The central bank also reiterated that it “expects continued increases in the target range to be appropriate,” and that it is “strongly committed to returning inflation to its 2% objective.”
Powell will hold a press conference at 2:30 pm
Fresh projections show that a fourth straight rate hike of 75 basis points could be on the table for the next meeting in November, about a week before the midterm elections.
For Bloomberg’s TOPLive blog on the Fed’s decision and press conference, click here
Policymakers now expect the prime rate to rise to 4.4% by the end of the year and 4.6% during 2023, according to the median estimate in the updated quarterly projections published alongside the statement.
Further ahead, rates were seen dropping to 3.9% in 2024 and 2.9% in 2025.
The policy-sensitive two-year Treasury yield rose, jumping above the 4% level. Meanwhile the S&P 500 index slipped — reversing the day’s early gains — while the dollar index hit a record high.
Traders encouraged swaps where they now see the funds rate ending the year at around 4.31%, from around 4.22% before the FOMC meeting wrapped up.
The projections, which showed a steeper rate path than officials laid out in June, underscore the Fed’s intention to cool inflation despite the risk that soaring borrowing costs could push the United States into recession.
Powell and his colleagues, bogged down by a slow initial response to rising price pressures, have fought hard to catch up and are delivering the most aggressive policy tightening since the Fed under Paul Volcker in four decades since then.
The updated forecasts also showed that unemployment will rise 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.
Estimates for economic growth in 2023 were marked at 1.2% and 1.7% in 2024, reflecting a greater impact from tighter monetary policy.
Read more: Global Race to Raise Rates Leads Economies to Recession
Inflation peaked at 9.1% in June, as measured by the 12-month change in the US consumer price index. But it has not come down as quickly in recent months as Fed officials had hoped: In August, it was still at 8.3%.
Meanwhile, job growth has remained strong and the unemployment rate, at 3.7%, remains below levels that most Fed officials consider sustainable in the long run.
The labor market failure added to the impetus for a more aggressive tightening path by the US central bank.
Fed action is also taking place against a backdrop of tightening by other central banks to address rising price pressures around the world. Combined, there have been about 90 interest rate hikes this year, half of which rose by at least 75 basis points in a single shot.
(The market reaction is added in the seventh and eighth paragraphs.)
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