FED, increase of 50 bp according to expectations. Terminal rate at 5.1%

Fed Evans half point rate hike likely as early as

(Finance) – After four 75 basis point rate hikes, the Federal Open Market Committee (FOMC) of the Federal Reserve has decided to further increase the cost of money by 50 basis points, meeting the expectations of analysts. Unanimously, the members of the FED body then brought the rates up federal funds at the range of 4.25-4.50% and clarified that “continued increases in the target range will be appropriate to achieve a monetary policy stance tightening enough to bring inflation back to 2% over time”.

“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening monetary policy, the delays with which monetary policy affects economic activity and inflation and economic and financial developments”, reads the statement released at the end of the last meeting of the year. Furthermore, the Committee will continue to reduce its holdings in Treasuries and agency debt and agency mortgage-backed securities, as described in the Plans released in May.

It is underlined that the FOMC “would be willing to change the orientation accordingly monetary policy should risks emerge which could hinder the achievement of the objectives”.

In its macroeconomic analysis, the Federal Reserve highlights that “recent indicators point to modest growth in spending and production”. Additionally, job gains have been “robust” in recent months and the unemployment rate has remained “low.” L’inflation remains highreflecting supply-demand imbalances related to the pandemic, rising food and energy prices, and broader price pressures.

Along with the rate decision came indications that officials they plan to keep the higher rates through next year, with no reductions through 2024. The expected “terminal rate,” or the point at which officials expect rate hikes to end, was pegged at 5.1%, according to the FOMC’s “dot plot.” It then projects a full percentage point of rate cuts in 2024, bringing the rate to 4.1% by the end of that year, higher than previously indicated.

FOMC members have cut theirs GDP growth forecasts for 2023 and expect a 0.5% expansion. At the same time, they raised their estimate for 2022 GDP slightly to 0.5%. Also, central bankers have increased theirs projection for the unemployment rate next year to 4.6% from November’s level of 3.7%.

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