September 26, 2022

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The Federal Reserve announces a 0.25 percentage point rate hike, the first increase since 2018;  Sees 6 more hikes in the future in the year

The Federal Reserve announces a 0.25 percentage point rate hike, the first increase since 2018; Sees 6 more hikes in the future in the year

The Federal Reserve announced its long-awaited rate hike, its first since 2018, by 0.25 percentage point to a range of 0.25% to 0.5%, as announced after the conclusion of the Federal Open Market Committee (FOMC) on Wednesday (16).

The The decision had been expected for some time It has already raised the cost of mortgages and other types of credit in anticipation of the Fed’s move to contain the rate hike, which is already at its strongest pace in 40 years.

Alongside the decision, the committee also noted interest rate hikes at each of the remaining six meetings this year, as it forecast interest rates between 1.75% and 2% through the end of the year. The committee sees three more increases in 2023.

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The decision was approved by 8 members of the committee on Wednesday, with only one dissenting. That was James Pollard of St. Louis, who voted for a more aggressive 0.5 percentage point increase.

Fomc aims to achieve 2% inflation over the long term. “With the appropriate strengthening of monetary policy, the Committee expects inflation to return to its 2% target and the labor market to remain strong,” so it decided to increase the rate and “expects that continued increases will be appropriate.”

As for the Federal Reserve’s balance sheet of nearly $9 trillion, consisting primarily of Treasuries and mortgage-backed securities purchased over the years, the statement highlighted that it expects to reduce its asset holdings at an upcoming meeting.

The authorities have also revised their economic forecasts on several fronts, seeing inflation much higher than they projected in December last year and grossly slower GDP growth.

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Committee members raised their inflation estimates, expecting core CPI, excluding food and energy, to rise 4.1% this year, compared to a 2.7% forecast in December.2021. For 2022 and 2023, forecasts are for increases of 2.7% and 2.3%, respectively, before the long-term target of 2% is reached.

As for GDP for 2022, the forecast was lowered from 4% in December to 2.8%; The overall unemployment rate is expected to close at 3.5%. The statement dropped direct reference to the coronavirus pandemic, but mentioned the war in Ukraine as “additional upward pressure on inflation” and affecting economic activity.

“Invade Ukraine by Russia It causes enormous human and economic hardship. “The implications for the US economy are highly uncertain, but in the short term, the invasion and related events are likely to put additional upward pressure on inflation and pressure on economic activity.”

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