At its meeting yesterday, the Federal Reserve’s Monetary Policy Committee (FOMC) decided to raise the short-term interest rate by 0.75% to 3.00-3.25%, in line with market expectations.
The Fed has raised interest rates for the third time in a row by 0.75%. This is the Fed’s toughest move since it made short-term interest rates a key monetary policy tool in 1990. It now stands at 3.00-3.25%, the highest level since 2008.
The Fed has also signaled that it will raise interest rates to 4.6% by 2023.
In their key interest rate forecast (dot plot), Fed officials do not expect any rate cuts until 2024, leading to a decline in the long-term interest rate to 2.9%.
Interest rates are expected to reach 4.4% at the end of this year and 4.6% at the end of 2023 before falling to 3.9% in 2024 and remaining stable at 3.9% in 2025.
Core inflation is expected to reach 4.5% by the end of the year, moderating to 3.1%, 2.3% and 2.1% in 2023, 2024 and 2025, respectively.
The unemployment rate is expected to reach 3.8% by the end of the year and rise to 4.4% in 2023 and 2024 before falling to 4.3% in 2025, while the long-term unemployment rate is 4.0%.
Meanwhile, the US economy is forecast to grow by just 0.2% by the end of the year, rising to 1.2% by 2023.