The Fed Hikes Interest. The United States Federal Reserve (Fed) Central Bank again raised its benchmark interest rate target by 25 basis points (bps), or the ninth increase since March 17, 2022.
The results of the meeting (FOMC) of The Fed during March 21-22 2023 resulted in setting a benchmark interest rate target of 0.25 percent to a range of 4.75 percent-5 percent, or the highest level since October 2007.
Alongside its policy announcements, the Fed also releases its latest economic forecasts in its Summary of Economic Projections (SEP), including the “dot plot”, which charts policymakers’ expectations of the future direction of interest rates.
The Fed’s latest dot plot suggests rates will continue to climb higher in 2023, but only slightly, with the benchmark rate projected to peak at 5.1 percent this year, on par with the December 2022 projection. Seven officials predict a rate higher than 5. .25 percent this year, with one member projecting a rate as high as 6 percent.
The Fed Hikes Interest. None of the Fed’s Tea officials foresee a rate cut this year, although they do see it falling to 4.3 percent in 2024, slightly higher than December’s outlook for the rate that will expire next year of 4.1 percent.
SEP indicated the Federal Reserve expects core inflation to peak at 3.6 percent this year – higher than December’s 3.5 percent projection – before cooling to 2.6 percent next year and 2.1 percent in 2025
Fed officials see the unemployment rate rising to 4.5 percent this year, below the 4.6 percent forecast earlier. The unemployment rate is anticipated to increase slightly to 4.6 percent next year and stay there through 2025.
The Fed also sees US economic growth below average, with the US economy barely growing next year at just 0.4 percent (down from projected 0.5 percent in December 2022) before rising slightly to 1.2 percent in 2024 and 1.9 percent in 2025.
During a press conference, Fed Chair Jerome Powell was asked about the possibility of the unemployment rate increasing as a result of the rate hike. In this regard, Powell reiterated that recessions are difficult to model and reducing inflation is his top priority, regardless of the risks. “Long economic expansion with low interest rates is very good for society,” he said.
Meanwhile, regarding the current global bank crisis, Powell only said that the Fed had to wait and see how strong the blow would be at this time.
“The longer it’s sustained, then the greater” the “likely tightening in credit availability,” Powell said.
The Fed Hikes Interest. Closing the press conference, Powell reiterated that the Fed raised interest rates by a quarter point today while signaling some considerable uncertainty about what comes next.
Powell signaled that officials were still very focused on fighting inflation, but also keeping an eye on how much recent bank failures slowed lending in the economy and cooled demand.