The Federal Reserve on Wednesday launched its biggest broadside yet against inflation, raising benchmark interest rates three-quarters of a percentage point in a move that equates to the most aggressive hike since 1994.
Ending weeks of speculation, the rate-setting Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75%, the highest since just before the Covid pandemic began in March 2020.
According to CNBC News, Stocks gave up some of their gains in the wake of the decision, which followed its two-day policy meeting. Additionally, members indicated a much stronger path of rate increases ahead to arrest inflation moving at its fastest pace going back to December 1981, according to one commonly cited measure.
The Fed’s benchmark rate will end the year at 3.4%, according to the midpoint of the target range of individual members’ expectations. That compares with an upward revision of 1.5 percentage points from the March estimate.
The committee then sees the rate rising to 3.8% in 2023, a full percentage point higher than what was expected in March. Officials also significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% from March.
The inflation projection as gauged by personal consumption expenditures also rose to 5.2% this year from 4.3%, though core inflation, which excludes rapidly rising food and energy costs, is indicated at 4.3%, up just 0.2 percentage points from the previous projection. Core PCE inflation ran at 4.9% in April, so the projections Wednesday anticipate an easing of price pressures in coming months. The committee’s statement painted a largely optimistic picture of the economy even with higher inflation.
“Overall economic activity appears to have picked up after edging down in the first quarter,” the statement said. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.“
