Faced with the highest inflation in more than 40 years, the Federal Reserve has once again turned up the heat, taking its most aggressive step yet in the attempt to curb inflation. The Federal Open Market Committee (FOMC) unanimously decided to raise the target range for the federal funds rate to 1.50 to 1.75, with further rate hikes looking inevitable. The 75 basis point hike follows an already aggressive 50 basis point increase in May and marks the largest upward step since 1994.
“We at the Fed understand the hardship high inflation is causing,“ Fed Chairman Jerome Powell said in a press conference following the FOMC meeting. “From the standpoint of our Congressional mandate to promote maximum employmentand price stability, the current picture is plain to see: The labor market is extremely tight, and inflation is much too high,” Powell said. Since the last meeting in May, “inflation has once again surprised to the upside, some indicators of inflation expectations have risen, and projections for inflation this year have been revised up notably,” he added, explaining why the Committee decided to raise its policy rate by even more than the previously anticipated 50 basis points. And more hikes are coming. As it stands, Powell expects either a 50 or a 75 basis point increase at the next FOMC meeting in July. That would bring the total increase to 2.00-2.25 percentage points this year, something that seemed unthinkable just a few months ago.
The latest projections made by FOMC members indicate that even that won’t be the end of it, though. The median projection of the midpoint of the appropriate target range at the end of this year is now 3.4 percent, up from a March projections of 1.9 percent. Rate hikes could continue in 2023, with the median projection from committee members raised to 3.8 percent for the end of 2023, up from 2.8 percent in March.
This chart shows the U.S. federal funds target rate since 2007.
