Washington, United States (CNN) – The Federal Reserve made history Wednesday after accepting a third consecutive rate hike of 75 basis points, in a determined move to address severe inflation plaguing the US economy.
This massive rally, which the markets could not understand just a few months ago, has brought the central bank benchmark lending rate to a new target range of 3% – 3.25%. It is the highest rate on federal funds since the global financial crisis in 2008.
Wednesday’s decision is seen as the Fed’s strongest political move since the 1980s to fight inflation. It also likely causes economic pain to millions of American businesses and families by increasing the cost of borrowing for things like homes, cars, and credit cards.
Federal Reserve Chairman Jerome Powell acknowledged the “economic pain” that such a rapid tightening regime would cause. “Nobody knows whether this process will lead to a recession or not, and how severe this recession will be,” he said at a press conference Wednesday afternoon following the announcement of the central bank’s policy.
Perhaps most important to investors seeking future guidance from the Federal Reserve is the Fed’s interest rate outlook, which determines what officials believe is the appropriate course of future rate hike policy. Data released Wednesday showed that the Federal Reserve expects interest rates to remain high for years to come.
He says the average federal funds rate projected for 2022 has been revised up to 4.4% from 3.4% in June. The figure is expected to rise to 4.6% from 3.8% for 2023. The rate for 2024 has also been revised to 3.9% from 3.4% in June and is expected to remain high at 2.9% in 2025 .
Overall, the new forecasts show an increased risk of a hard landing as monetary policy tightens to the point of causing a recession. They also provide some evidence that the Fed is willing to accept “economic pain” in economic conditions in order to reduce persistent inflation.
Here, in the infographic above, are the levels of the Federal Reserve that has raised interest rates in recent years, from 1992 to September 21, 2022.
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