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Faced with the highest inflation in more than 40 years, the Federal Reserve has taken aggressive action this year. At its last policy meeting in September, the Federal Open Market Committee (FOMC) unanimously decided to raise the target range for the federal funds rate to 3.00 to 3.25, with further rate hikes looking inevitable. The third 75 basis point hike in four months follows an already aggressive 50 basis point increase in May and marks the fastest upward movement of the key interest rate since the early 1980s, when the Fed battled the highest inflation on record.
“My colleagues and I are strongly committed to bringing inflation back down to our 2 percent goal. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses,” Fed Chairman Jerome Powell said in a press conference announcing the latest decision. “Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone,” Powell added.
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 4.4 percent, up from a March projection of 1.9 percent. Rate hikes could continue in 2023, with the median projection from committee members raised to 4.6 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.
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