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The U.S. Federal Reserve raised interest rates by half a percentage point on Wednesday. It projected at least an additional 0.75% increase in borrowing costs by the end of 2023, a rise in unemployment, and near-stalling economic growth. The United States central bank’s projection of the target federal funds rate rising to 5.1 percent in 2023 is slightly higher than investors expected heading into this week’s two-day policy meeting and appeared biased if anything to move higher.
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The Federal Reserve will deliver more interest rate hikes next year even as the economy slips towards a possible recession, Fed Chair Jerome Powell said on Wednesday, arguing that a higher cost would be paid if the U.S. central bank does not get a firmer grip on inflation. Recent signs of slowing inflation have not brought any confidence yet that the fight has been won, Powell told reporters
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The new level marks the highest the fed funds rate has been since December 2007, just ahead of the global financial crisis and as the Fed was loosening policy aggressively to combat what would turn into the worst economic downturn since the Great Depression.
Why it matters
Wednesday's hike marked the Fed's seventh this year. The bank is responding to inflation in the U.S. that remains near a 40-year high, though it has dropped since a peak of 9.1% in June, helped by a decline in energy costs. Mr. Powell said the bank was encouraged by signs that inflation was improving, but it would take "substantially more evidence" to be confident that it was on a sustained downward path.
