At its September meeting, the US Federal Reserve decided to raise its key rates by 75 basis points, brought within the range of 3% to 3.25%, in order to curb inflation which remains high in the country. It is the third movement of this magnitude in a row and the fifth since March. Further rate hikes are expected as the committee is firmly committed to bringing inflation back to its 2% target, the Fed said in its statement.
The median rate view is now expected at the end of 2023 at 4.6%, compared to 3.8% in June, and at 4.4% at the end of 2022.
In August, consumer prices rose again by 8.3% year on year in published data and by 6.3% excluding volatile elements (energy and food), beyond July’s 5.9%.
The new Fed projections show a sharp downward revision to growth forecasts, especially for 2022 and 2023, for a slightly higher unemployment rate. Inflation is seen at 5.4% this year, against 5.2% previously, and at 4.5% excluding food and energy, against 4.3% previously. The likelihood of a smooth economic downturn has diminished, Jerome Powell said at his press conference.
” The Fed may have stuck to the main storyline with a 75 basis point rate hike at its September meeting, but it still managed to deliver an offensive message with the accompanying projections, which imply a hike. additional 75 basis points in November and a move of 50 basis points in December, with further tightening to come in 2023deciphers Michael Pearce, at Capital Economics, the median projection for end-2023 is up to 4.6%, implying another 25 basis point rate hike early next year. ยป
The new September dot plots:
Fed Chairman Jerome Powell’s press conference: