The United States Federal Reserve announced it has raised its benchmark interest rate by 0.75 percentage points, the third such outsized rate increase in a row.
Federal Reserve Chair Jerome Powell vowed on Wednesday that he and his fellow policymakers would “keep at” their battle to beat down inflation, bringing the Fed rate to 3%-3.25% and increasing the cost of everything from credit card debt and mortgages to company financing.
The central bank also signalled more raises to come, predicting rates would reach 4.4% by the end of the year and not start coming down until 2024.
What the Fed is saying
The press release reads “The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4% and anticipates that ongoing increases in the target range will be appropriate. “
The Committee added that it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that was issued in May.
“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” the Fed chair, Jerome Powell, said in his press conference. “We have always understood that restoring price stability while achieving a relatively modest increase in unemployment and a soft landing would be very challenging. And we don’t know. No one knows whether this process will lead to a recession or if so, how significant that recession would be.”
Powell was blunt about the “pain” to come, citing rising joblessness and singling out the housing market, a persistent source of rising consumer inflation, as being likely in need of a “correction.”
What you should know
- Despite the Fed’s aggressive tightening – it also announced 75-basis-point rate hikes in June and July – recent inflation figures have shown little to no improvement, and the labour market remains healthy, with wages rising as well.
- The U.S. Bureau of Labor Statistics reported the country’s consumer price index (CPI) inflation jumped by 8.3% annually in August.
- The Fed’s target policy rate is now at its highest level since 2008 – and new projections show it rising to the 4.25%-4.50% range by the end of this year and ending 2023 at 4.50%-4.75%.
