The 75-point interest rate hike is the highest since 1994. The Fed assured that it is “strongly committed to bringing inflation back to 2%”. Right now, price growth in the world’s leading economy is at the highest levels of 40 years ago.
According to the monetary entity, “Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher energy prices, and broader pricing pressures.”
The Federal Reserve also said that “general economic activity appears to have picked up” and job gains “have been robust.” About his monetary policy he said “be prepared to adjust if risks appear that prevent achieving the objectives”.
For the Fed, the Russian invasion of Ukraine “is creating additional upward pressures on inflation that are weighing on global economic activity”. As for the Covid-19-related lockdowns in China, “they will likely exacerbate supply chain disruptions.”
New quarterly forecasts from US central bank officials released on Wednesday, coupled with an interest rate hike of three-quarters of a percentage point, showed the median expectation is that its benchmark policy rate rises to 3.4% by the end of 2022. In March, the projected rate was 1.9%.
The fed funds rate at the end of 2023 is now projected to be 3.8%, up from the March forecast of 2.8%, while that of the end of 2024 would be 3.4% compared to 2.8% in March. Officials raised their long-term policy rate to 2.5% from 2.4%.
Inflation, as measured by the annual change in the personal consumption expenditure index, is expected to end the year at 5.2%, above the March projection of 4.3%. In April, the PCE rose 6.3% year-on-year, just below the 40-year high reached in March.
The monetary authorities estimate that the unemployment rate will be 3.7% at the end of this year, compared with 3.5% in their March forecasts. The US unemployment rate was 3.6% in May.
Source: Ambito
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