New Telegraph

Federal Reserve hikes interest rate by 0.75% to tame inflation

In its bid to rein in high inflation, the Federal Reserve, for the third consecutive time, yesterday raised its key short-term rate for the third time by three-quarters of a percentage point to a range of three per cebt to 3.25 per cent, a higher-thannormal level designed to ease inflation by slowing the economy.

It also significantly bumped up its forecast for what that rate will be at the end of both this year and 2023. Fed officials now predict the key rate will end 2022 at a range of 4.25 per cent to 4.5 per cent, a full percentage point above the 3.25 per cent to 3.5 per cent they projected in June, and close out next year at 4.5 per cent to 4.75 per cent, according to their median estimate. That suggests the central bank could approve another three-quarter point hike at its November meeting and then a half-point rate rise in December.

But within the next year or two, as higher rates restrict economic activity, Fed policymakers expect growth to weaken substantially. The central bank expects to cut the fed funds rate by about three-quarters of a point in 2024, presumably in response to a slowing economy or possibly a recession. Federal Reserve Chairman Jerome Powell said on Aug. 26, 2022, that the Fed is committed to bringing inflation down to its two per cent goal, which means interest rates will continue to rise. The economy is already pulling back. In a statement after a two-day meeting, the Fed said, “Recent indicators point to modest growth in spending and production” but “job gains have been robust….and the unemployment rate has remained low.” It added that it, “anticipates that ongoing increases” in the fed funds rate “will be appropriate.”

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