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Federal Reserve delivers third-straight big hike, raise rates by 75 basis points

22 Sep 2022 8:30 am
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Mumbai, 22 Sep (Commoditiescontrol): Federal Reserve Chair Jerome Powell vowed officials would crush inflation after they raised interest rates by 75 basis points for a third straight time and signaled even more aggressive hikes ahead than investors had expected.

“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Powell told a press conference in Washington on Wednesday after officials lifted the target for the benchmark federal funds rate to a range of 3% to 3.25%.

“Higher interest rates, slower growth and a softening labor market are all painful for the public that we serve. But they’re not as painful as failing to restore price stability and having to come back and do it down the road again,” he said.

Officials forecast that rates would reach 4.4% by the end of this year and 4.6% in 2023, a more hawkish shift in their so-called dot plot than anticipated. That implies a fourth-straight 75 basis-point hike could be on the table for the next gathering in November, about a week before the US midterm elections.

Powell said his main message was that he and his colleagues were determined to bring inflation down to the Fed’s 2% goal they “will keep at it until the job is done.” The phrase invoked the title of former Fed chief Paul Volcker’s memoir “Keeping at It.”

“We’ve written down what we think is is a plausible path for the federal funds rate. The path that we actually execute will be enough -- it will be enough to restore price stability,” he said. That was a strong signal that officials would not hesitate to raise rates by more than they currently expect if that’s what it takes to cool inflation.

Further ahead, rates were seen stepping down to 3.9% in 2024 and 2.9% in 2025, their projections showed.

The updated forecasts showed unemployment rising to 4.4% by the end of next year and the same at the end of 2024 -- up from 3.9% and 4.1%, respectively, in the June projections.

Estimates for economic growth in 2023 were marked down to 1.2% and 1.7% in 2024, reflecting a bigger impact from tighter monetary policy.

Inflation peaked at 9.1% in June, as measured by the 12-month change in the US consumer price index. But it’s failed to come down as quickly in recent months as Fed officials had hoped: In August, it was still 8.3%.

Job growth, meanwhile, has remained robust and the unemployment rate, at 3.7%, is still below levels most Fed officials consider to be sustainable in the longer run.

The failure of the labor market to soften has added to the impetus for a more-aggressive tightening path at the US central bank.

Fed action is also taking place against the backdrop of tightening by other central banks to confront price pressures which have spiked around the globe. Collectively, about 90 have raised interest rates this year, and half of them have hiked by at least 75 basis points in one shot.

Here are key takeaways from the Federal Reserve's interest-rate decision and economic projections on Wednesday:

Fed raises its main rate 75 basis points, as anticipated, to a range of 3% to 3.25%, while new projections from officials show a median estimate of 4.4% at the end of 2022 and 4.6% at the end of 2023 While Wednesday's decision was unanimous, the dot plot shows 10-9 majority in favor of hiking above 4.25% this year, suggesting a fourth straight 75 basis-point increase in November is possible Policy makers expect rates will be cut in 2024, to about 3.9%, and to 2.9% in 2025 Statement is virtually identical to prior FOMC meeting in July; Fed says recent indicators “point to modest growth” in spending and production, compared with July's language that the data had “softened” GDP growth forecasts marked down to 1.2% in 2023 and 1.7% in 2024, below the longer-run trend; unemployment seen rising to 4.4% in 2023


(By Commoditiescontrol Bureau: +91-22-40015505)


       
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