The Federal Reserve on Wednesday raised its benchmark interest rate to the highest level in 15 years, indicating that the fight against inflation is not over yet despite some promising signs lately.
Keeping with expectations, the rate-setting Federal Open Market Committee voted to boost the overnight borrowing rate half a percentage point, taking it to a targeted range between 4.25% and 4.5%. The increase broke a string of four straight three-quarter point hikes, the most aggressive policy moves since the early 1980s.
Along with the increase came an indication that officials expect to keep rates higher through next year, with no reductions until 2024. The expected «terminal rate,» or point where officials expect to end the rate hikes, was put at 5.1%, according to the FOMC's «dot plot» of individual members' expectations.
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.
This time around, the Fed is raising rates into what is expected to be a moribund economy in 2023.
Members penciled in increases for the funds rate until it hits a median level of 5.1% next year, equivalent to a target range of 5%-5.25. At that point, officials are likely to pause to allow the impact of the monetary policy tightening make its way through the economy.
The consensus then pointed to a full percentage point worth of rate cuts in 2024, taking the funds rate to 4.1% by the end of that year. That is followed by another percentage point of cuts in 2025 to a rate of 3.1%, before the benchmark settles into a longer-run neutral level of 2.5%.
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