In view of rising inflation data, the US Federal Reserve has increased interest rates by 75 bps. Some of the key points after today’s much-awaited decision are as follows:
– The US Federal Reserve raised its benchmark rate by 75 basis points – the biggest increase since 1994 – to a range of 1.5%-1.75%. This is in line with the expectations of investors and economists in view of the uptick in inflation data; Kansas City Fed President Esther George disagrees in favor of a 50 basis-point increase
– New dot-plot projections showed a sharp increase from March, with the federal funds target rising to 3.4% by the end of the year – another 175 basis points of tightening this year – and 3.8% in 2023, before falling to 3.4% in 2024 . , Prior forecasts in March were for a rate of 1.9% this year and 2.8% in 2023 and 2024.
– The FOMC added a line saying that it is ‘strongly committed to bringing inflation back to its 2% objective’ and removed prior language that said the FOMC ‘returns inflation to its 2% objective’ Hoping to return and the labor market remains strong.
– A very buoyant soft landing was expected in economic projections, with the unemployment rate rising from 3.7% at the end of 2022 to 4.1% in 2024; Growth forecasts were lowered to 1.7% in 2022 and 2023, from 2.8% and 2.2% in March; Fed officials still expect inflation to drop significantly in 2023
The Fed reiterated the balance sheet reduction route that took effect June 1 and reduced the bond portfolio to $47.5 billion a month and increased to $95 billion in September.
US stocks fell and then rose again in a volatile reaction to the Federal Reserve’s biggest hike in interest rates since 1994 to beat inflation. The S&P 500 sank briefly after the announcement, then quickly rebounded.
– Investments around the world, from bonds to bitcoin, have fallen this year as high inflation forces the Federal Reserve and other central banks to sharply remove support below markets at the start of the pandemic. The fear is that an overly aggressive interest rate hike will push the economy into recession.