The Federal Open Market Committee raised the federal funds rate to a new target range of 3% to 3.25% after its two-day policy meeting, launching the most aggressive monetary tightening campaign since the early 1980s. New forecasts from central bank policymakers showed the benchmark rate rising to 4.4 percent by the end of this year before peaking at 4.6 percent next year. At a press conference after the rate hike, Fed Chairman Jay Powell said the bank would likely keep interest rates at a level where they would limit economic growth “for some time” and warned that doing so would hurt growth. and will lead to higher unemployment. Asked about the damage that raising interest rates would do to the economy, he said: “Nobody knows if this process will lead to a recession.” “We’re going to keep going until we’re sure the job is done,” Powell added, echoing language he used at a banquet of central bankers in Jackson Hole last month when he delivered his most aggressive message since being named to the top job. at the Fed. In a statement, the FOMC said: “Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher food and energy prices, and broader price pressures.” The committee, which said the rate hike was unanimously supported by policymakers, added that it “expects that continued increases in the target range will be appropriate.” The US central bank also released an updated “dot plot” of Fed officials’ individual rate forecasts through the end of 2025, which reinforced their commitment to a “higher for longer” approach. Forecasts signaled further big rate hikes this year and no cuts before 2024.

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The median estimate for the Fed Funds rate through the end of the year jumped to 4.4%, suggesting another 0.75 percentage point rate hike in 2022 before the Fed begins tapering. Officials also forecast the key policy rate to peak at 4.6 percent in 2023 before falling to 3.9 percent in 2024. It is set to drop further to 2.9 percent in 2025. These forecasts were much more aggressive than in June, the last time the dot chart was updated. At the time, officials predicted the Fed Funds rate would reach just 3.4% by the end of the year and 3.8% in 2023, before easing in 2024. At the time, the median estimate for the unemployment rate was 3.9 percent in 2023 and 4.1 percent in 2024. After the statement, US stocks initially fell, before recovering during Powell’s press conference. The S&P 500 and Nasdaq Composite rose 0.7% and 1% respectively. In choppy trade, the yield on the two-year Treasury, which moves with interest rate expectations, was slightly higher on the day, hovering just below the 15-year high of 4.1% hit shortly after the Fed’s statement. Bryan Whalen, co-chief investment officer at TCW, said the Fed is “reiterating” its “hawkish message” and “completely eliminated[ed] any hope of a more casual message.” “What comes out is the dots for 2023 and the difference between the dots and the market,” he said. “The Fed is on track to 4.6% through 2023, while the market has a 0.5 percentage point cut through the end of the year.” Officials on Wednesday acknowledged more directly the economic costs associated with their efforts to tackle inflation, penciling in higher unemployment and lower growth. Officials see the unemployment rate rising from the current rate of 3.7 percent to 4.4 percent in 2023, where it is expected to remain until the end of 2024. By 2025, the median estimate drops to 4.3 percent one hundred.

Over the same period, annual gross domestic product growth is expected to slow sharply to 0.2 percent by the end of the year before picking up to 1.2 percent in 2023 as “core” inflation falls from 4.5 percent predicted for the year – Ended at 3.1%. In July, the Fed’s preferred gauge, the core personal consumption expenditure price index, came in at 4.6%. Growth is expected to stabilize at just 2% in 2024 and 2025, when officials finally expect core inflation to approach the Fed’s 2% target range. In June, policymakers predicted that as inflation falls closer to the Fed’s 2% target, growth will slow to just 1.7%. Most economists now expect the US economy to slip into recession next year. The September meeting marked an important juncture for the Fed, which has faced questions this summer about its determination to restore price stability after Powell suggested the central bank was beginning to worry about too much tightening.