The base rate is thus moving into the 1.5-1.75% range, having risen by 75 basis points at once for the first time since 1994. The Fed has also indicated that it will continue its aggressive hikes this year. The new forecast calls for the rate to rise to 3.4% by the end of this year. In March, the outlook was 1.9%.
For 2023, the central bankers’ committee’s median estimate for the key rate is 3.8%. That’s one percentage point higher than projected in March. Meanwhile, five officials project a rate above 4%.
U.S. inflation is the highest in 40 years
The inflation rate for May in the United States surprisingly climbed to 8.6%, although analysts had thought it peaked in April at 8.3%. Inflation in the US is now the highest since late 1981. Meanwhile, the Fed has its inflation target at 2%.
Fed Chairman Jerome Powell said a hike of 75 or a more modest 50 basis points is most likely again in July. He also said that moves of that magnitude will not be usual.
— Federal Reserve (@federalreserve) June 15, 2022
The Fed also reiterated that it will reduce its massive balance sheet by $47.5 billion a month. This measure began to take effect on June 1. In September, central bankers plan to increase the “blowing” of the balance sheet to a pace of 95 billion, also confirming the move announced earlier this spring.
According to the new forecast, US economic growth will slow to 1.7% this year. As recently as March, the Fed expected a 2.8% expansion. The unemployment rate could rise to 4.1% by the end of 2024. The inflation rate, as measured by the personal consumption expenditures index compiled by the Commerce Department, will reach 5.2% this year, according to the Fed’s new forecast, versus 4.3% in the March estimate.
Powell also talked about the recession and mentioned.
“We’re not trying to trigger a recession. We’re trying to bring inflation down to two percent and keep the labor market strong.”