by Howard Schneider and Ann Saphir
WASHINGTON, March 16 (Reuters) – The U.S. Federal Reserve (Fed) on Wednesday announced a quarter-point hike in its main policy rate and said it plans to raise it to between 1.75% and 2% by the end of of the year, adopting a deliberately offensive tone in the face of inflation.
The rate target for federal funds (“fed funds”), the main instrument of US monetary policy, is thus raised to 0.25%-0.5%, as expected by a large majority of economists and analysts polled by Reuters .
New Fed forecasts suggest it could raise rates again at each of six scheduled meetings by the end of December and that the fed funds rate could reach 2.8% by the end of 2023, a level above that of 2.4% from which the central bank estimates that it would slow down growth.
In its statement, the Federal Open Market Committee (FOMC), its monetary policy committee, underlines the great uncertainties to which the conflict in Ukraine and the health crisis expose the economy but adds that further rate hikes will be “appropriate” in the coming months.
He adds that the war in Ukraine is creating “additional upward pressure” on inflation while weighing on economic activity.
The Fed’s new forecasts thus show that even by raising interest rates more rapidly than previously anticipated, inflation should remain above the 2% target set by the central bank: they on a price increase of 4.1% this year and 2.3% in 2024.
Economic growth is forecast at 2.8% this year, against 4.0% in the December forecast.
Consumer price inflation in the United States reached 7.9% year on year last month, its highest level since 1982, and the fallout from the conflict in Ukraine on energy and commodity prices is likely to delay its reflux for at least several months.
The Fed press release adds that it plans to start reducing its balance sheet, which has grown to more than 8,500 billion dollars (7,700 billion euros) by years of massive purchases of bonds on the markets, “during an upcoming meeting.
Its chairman, Jerome Powell, is due to begin these decisions and the new forecasts at a press conference from 6:30 p.m. GMT.
Yields on US Treasuries amplified their rise after the publication of the Fed’s statement and forecasts and that of ten-year securities was displayed at 2.2386% around 18:20 GMT against 2.2% around a few minutes earlier. .
At the same time, the dollar only lost 0.12% against a basket of benchmark currencies, while on Wall Street, the Standard & Poor’s index reduced its growth to 0.21%.
(Report Howard Schneider, French version Marc Angrand, edited by Matthieu Protard)