The Federal Reserve raises interest rates by 0.50% in its 2022 final meeting

The Federal Reserve hiked short-term interest rates by 0.50% on Wednesday, taking key interest rates to their highest level since 2007, suggesting that more rate hikes are to come in 2023.

Wednesday’s move takes the federal funds rate to a range of 4.25% to 4.5%, capping a year that saw the central bank hike rates by a collective 4.25%.

Wednesday’s 50 basis point rate hike marked a slowdown from the Fed’s recent pace of rate hikes, as the central bank had hiked rates by 75 basis points at each of the past four policy meetings, the most aggressive period since 80s.

“Throughout the year, we took aggressive action to tighten the monetary policy stance,” Fed Chair Jerome Powell said Wednesday. “We have come a lot of ground and the full effects of our rapid tightening so far have yet to be felt. Even so, we still have a lot of work to do.”

In its statement announcing the move on Wednesday, the central bank included wording that it said it anticipated “continuous hikes” in interest rates, implying that the Fed does not intend to suspend rate hikes anytime soon.

“The Committee expects that continued increases in the target range will be appropriate to achieve a monetary policy stance tight enough to bring inflation back to 2% over time,” the Fed statement said.

The Fed’s new economic forecast released on Wednesday shows that key interest rates now see a peak of 5.1% in 2023, another 50 basis points higher than the 4.6% previously expected in September. Officials then see rates fall to 4.1% in 2024, slightly higher than previously expected.

These projections come after Fed Chairman Jerome Powell said at the latest meeting that rates will need to go higher than in previous September projections.

Seven officials expect rates to rise above 5% next year, with five hovering around 5.25% and two seeing a peak of 5.6% next year.

Officials don’t see core inflation returning anywhere near target until 2024, with inflation rounding to 4.8% this year before falling to 3.5% next year and 2.5% in 2024.

Federal Reserve Board Chairman Jerome Powell holds a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, U.S., December 14, 2022. REUTERS/ Evelyn Hockstein

Federal Reserve Board Chairman Jerome Powell holds a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, U.S., December 14, 2022. REUTERS/ Evelyn Hockstein

Officials see unemployment rise to 4.6% next year and stay at that level through 2024. The Fed sees below-average economic growth, with the economy barely growing next year at just 0 .5% before rising slightly to 1.6% in 2024.

Asked at a news conference Wednesday whether these forecasts — with slowing growth and rising unemployment — suggest the Fed would tolerate the economy tipping into recession, Powell said: “I don’t think that would qualify as recession, because you have positive [GDP] growth.”

The Fed’s move comes as inflation has begun showing signs of slowing over the past two months after hitting a 40-year high this spring. The consumer price index, excluding the more volatile food and energy components, rose 0.2% month over month in November, down from 0.3% in October and 0.6% in September and August.

“Inflation data received so far for October and November shows a welcome reduction in the monthly pace of price increases,” Powell said. “But it will take much more evidence to give confidence that inflation is on a sustained downward path.”

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