The Federal Reserve raised short-term interest rates by half a percentage point on Wednesday, slowing the pace of rate hikes from this summer’s scorching peak.
The rate hike brings the Fed’s key policy rate, the federal funds rate, to a new range of 4.25%-4.5%, the highest level since December 2007.
Wednesday’s 50 basis point rate hike comes after the Fed raised rates by 75 basis points in each of the past four policy meetings, its most aggressive effort since the 1980s.
“Recent indicators point to modest growth in spending and output,” the Fed said in its statement. “Job gains have been robust in recent months and the unemployment rate has remained low. Inflation remains high, reflecting pandemic-related supply-demand imbalances, higher food and energy prices, and price pressures wider”.
The central bank also left wording in its statement saying it anticipates “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.
Following this announcement, shares fell, with the tech-heavy Nasdaq down as much as 1%.
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.
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.
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.
The vote was unanimous.
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