The Fed announced an interest rate hike of 50 basis points and thus met the forecasts of analysts who expected the Federal Reserve to start a recession in rate hikes. However, the monetary unit also slashed its growth forecast for 2023 to 0.5% from 1.2% earlier and raised its inflation forecast for 2023, which will see its rates rise above 5%.
In turn, Federal Reserve Chairman Jerome Powell followed the statement by saying that he expected the service components of inflation to take longer than others, and that this would require higher interest rates to control headline inflation. “So we may have to raise rates further to get to where we want to go,” Powell said, adding, “We expect them to stay high for a while.”
Under the Federal Reserve’s preferred measure, inflation would remain above the 2% target through at least the end of 2025, and above 3% through the end of next year. The average unemployment rate is projected to increase from 3.7% to 4.6% over the next year, an increase that is higher than the level historically associated with recessions.
The Fed said, “The (Federal Open Market) Committee is very mindful of the risks to inflation (…) Continued increases in the target range to achieve a sufficiently accommodative monetary policy stance to bring inflation back to 2% over time.” would be appropriate.” An almost identical statement at its November meeting.
The unanimously approved new statement was issued after a meeting in which officials cut rates by three-quarters of a percent over the previous four meetings. The Fed’s key interest rate, which started the year near zero, is now in a target range of 4.25% to 4.50%, the highest since 2007.