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The Fed’s interest rate hike is the biggest in three decades, with the central bank forecasting a hike in its key rate to 3.8% by the end of next year

The Federal Reserve demonstrated on Wednesday that it wants to be aggressive in its fight against inflation, approving its largest interest rate hike in nearly three decades and signaling that its benchmark rate will rise by nearly 4% from here at the end of next year.

At the central bank meeting that ended on Wednesday, officials said they would raise the target federal funds rate by three-quarters of a percentage point, to between 1.5% and 1.75%.

In its so-called benchmark interest rate point forecast, the Fed indicated that it plans to raise the federal funds rate to a median level of 3.4% by the end of this year and to 3.8% by the end of 2023. Fed officials expect to be able to cut rates slightly in 2024.

There was only one dissent. Kansas City Fed President Esther George preferred a half-percentage-point hike.

Fed Chairman Jerome Powell said the Fed could raise interest rates at its next meeting by another 75 basis points, but, he warned, “I don’t expect that rate increases of this magnitude are common.”

In its policy statement, the Fed said it was firmly committed to bringing inflation back to 2%, the annual inflation rate it has traditionally targeted as half, alongside maximum sustainable employment, of his “dual mandate”. The central bank said overall economic activity in the United States had recovered from the weak first quarter.

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The Fed said it would adjust its interest rate policy if risks emerged that would “prevent” the Fed from meeting its targets.

The Fed’s aggressive tone comes after Powell was sworn in last month for a second four-year term. President Joe Biden met Powell in the Oval Office earlier this month, and Biden’s White House urged the Fed to fight inflation.

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In another sign of hawkishness, five of the 18 senior Fed officials now expect the funds rate to rise slightly above 4% next year.

Over the past month, the Fed has signaled it wants to raise rates by half a percentage point, but May consumer price data showed inflation was still at elevated levels. for 40 years.

Many economists fear that the Fed’s aggressive policy could push the economy into a recession.

See: Consumer confidence plummets on concerns over inflation and a slowing economy

In its economic forecast, the Fed expects the economy to slow to a growth rate of 1.7% this year and in 2023. Then, according to the Fed, the economy will recover slightly to a growth rate of 1.9% in 2024.

The Fed now expects the unemployment rate to rise to 3.7%, from 3.6% currently, by the end of this year and up to 4.1% in 2024.

The central bank expects inflation, as measured by the Fed-favored personal consumption expenditure index, to end the year at a rate of 5.2% and slow to 2.6% d by the end of 2023. The PCE price index was running at 6.3% rate in April.

By the end of 2024, inflation will return to a rate of 2.2%, close to the Fed’s target, the central bank predicted.

DJIA US Stocks,
+1.00%

SPX,
+1.46%
locked in and extended daily gains after the Fed’s decision, with Dow Jones Industrialists and the S&P 500 losing five-session streaks. The yield of the 10-year Treasury note TMUBMUSD10Y,
3.373%
fell as the 2-year yield saw its biggest one-day decline in two years.

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Post expires at 2:01am on Sunday June 26th, 2022