Fed hikes rates by 50 bps, as expected, keeps hawkish tone
- The Federal Reserve raised interest rates by half a percentage point on Wednesday and projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023 as well as a rise in unemployment and a near stalling of economic growth.
- The Fed's latest quarterly summary of economic projections shows U.S. central bankers see the policy rate, now in the 4.25%-4.5% range after Wednesday's 50-basis-point increase, at 5.1% by the end of next year, according to the median estimate of all 19 Fed policymakers.
- The Federal Reserve will deliver more interest rate hikes next year even as the economy slips towards a possible recession, Fed Chair Jerome Powell said on Wednesday, arguing that a higher cost would be paid if the U.S. central bank does not get a firmer grip on inflation.
- Policymakers expect their interest-rate hikes to push the unemployment rate, now at 3.7%, to 4.6% in the final quarter of 2023 and stay there through 2024.
- Further, Fed policymakers have become more pessimistic about the outlook for economic growth, with a median projection for GDP growth next year of 0.5%, versus September's expectation of 1.2%.