Fed Raises Interest Rates By Half Percentage Point, Sees 5.1% Rate Next Year

The US Federal Reserve on Wednesday raised interest rates by half a percentage point and projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023.

It also projected a rise in unemployment and a near stalling of economic growth.

The Fed’s projection of the target federal funds rate rising to 5.1 per cent in 2023 is slightly higher than investors expected.

This hawkish projection may send shockwaves across global financial markets which were anticipating a pause in interest rate hikes.

The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 per cent over time,” the FOMC said in its statement, reiterating its stance from previous meetings.

US stocks turned negative following the release of the policy statement. Yields on the 2-year and 10-year notes rose. The dollar edged higher against a basket of currencies.

Experts see the policy statement as a sign of Fed not letting its guard down against inflation until it sees conclusive evidence of a reversal in inflationary pressures.

Inflation, as per Fred’s preferred measure, is seen hovering above the central bank’s 2 per cent target at least until the end of 2025, and will still be above 3 per cent by the end of the next year.

(With Reuters Inputs)