The Federal Reserve on Wednesday raised its benchmark interest rate by 0.75 percentage point and signaled it plans to keep rates higher for longer as it tries to erase.
The Fed’s interest rate target is now in the range of 3% to 3.25%, the highest level in 14 years. The bank’s rate-setting panel also projected the Federal Funds rate would hit 4.4%b by year-end, well above the June projection of 3.4%. and 4.6% in 2023, up from the previous estimate of 3.8%.
Higher interest rates are likely to be a major drag on economic growth, officials noted in forecasts released alongside the Fed’s latest policy statement. Fed officials predicted GDP would grow just 0.2% this year and 1.2% next, down from a more optimistic forecast in June for 1.7% growth in 2022 and 2023.
A recession would affect jobs. Fed officials expect the country’s unemployment rate to jump to 4.4% next year, a substantial increase from its current level of 3.7%.
Equity markets tumbled on the news, with the S&P 500 down 1.5% from morning levels to 3,830.
In August, Powell warned that the Fed’s monetary tightening would “bring some pain” to Americans. Wall Street interpreted this to mean that the central bank will continue to raise rates even if it hurts economic growth, including triggering a recession, and the Fed’s most recent hike is in line with that stance.
The bank’s rate-setting body on Wednesday noted that inflation remains “elevated” and said it was “highly aware of inflationary risks.” Consumer price increases have emerged as this year’s most pressing economic issue, with costs of everything from housing to groceries outpacing wage increases andconsumers.
Fed Chair Jerome Powell is scheduled to hold a news conference at 2:30 pm ET. His remarks will be analyzed for clues as to whether the Fed expects to moderate the pace of rate hikes in the coming months or continue to tighten credit significantly until it is convinced that inflation is slowing.
This is a developing story. The Associated Press contributed reporting.
Source : www.cbsnews.com