Fed Raises Interest Rates 25 Basis Points, Predicts Ongoing Rate Hikes
In an effort to combat inflation at 40-year highs, the Federal Reserve on Wednesday announced its widely expected decision to raise interest rates for the first time since December of 2018.
The Fed said it has decided to raise the target range for the federal funds rate by 25 basis points to 0.25 to 0.5 percent.
The central bank also predicted ongoing rate hikes will be appropriate, with the Fed’s latest projections pointing to an interest rate of 1.9 percent by the end of the year.
Additionally, the Fed said it expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.
“With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong,” the Fed said.
The decision to raise rates by 25 basis points was nearly unanimous, although St. Louis Fed President James Bullard preferred a 50 basis point increase.
The rate hike came even as the Fed acknowledged Russia’s invasion of Ukraine is “causing tremendous human and economic hardship.”
The Fed said the economic implications of the conflict are “highly uncertain” but predicted the invasion and related events would create additional upward pressure on inflation and weigh on economic activity.
Potentially reflecting the impact of the invasion, Fed officials lowered their projections for GDP growth in 2022 to 2.8 percent from 4.0 percent and raised their projections for consumer price growth to 4.3 percent from 2.6 percent.
The Fed reiterated it would continue to monitor the implications of incoming information for the economic outlook when assessing the appropriate stance of monetary policy.
The central bank said it would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Fed’s goals of price stability and maximum employment.
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