The Fed escalates its anti-inflation action – Raises interest rates by 0.75 points

LAST UPDATE: 21:21

The Federal Reserve raised interest rates for the third time in a row on Wednesday, escalating action to tackle inflation that continues to “gallop” steadily to new highs of 40 years (8.6% in May), confirming market estimates that it moves more aggressively but also intensifies fears that it could lead the US economy into recession.

Specifically, the Federal Open Market Committee (FOMC) today decided to increase the interbank market rate for overnight transactions by 75 basis points, in the range of 1.50% -1.75% from 0.75% -1.00% previously. This is the largest increase in interest rates made by the central bank in almost 30 years, as a similar move was last made in 1994, with the relevant decision being taken after the latest data on inflation in the US, last Friday, showed that has made little progress in its battle for price relief.

Fed officials also signaled that the central bank would pursue a faster pace of rising borrowing costs to contain inflationary pressures. In fact, central bank officials predict that interest rates will rise to 3.4% by the end of this year and 3.8% in 2023. Estimate significantly different from that of March when they talked about interest rates at 1.9% this year .

“Inflation remains high, reflecting supply and demand imbalances associated with the effects of the pandemic, higher energy prices and wider price pressures,” the Federal Open Market Committee (FOMC) said in a statement. concludes its two-day meeting in Washington, where it adds that “the commission is strongly committed to bringing inflation back to the 2% target.”

The FOMC cites Russia’s war in Ukraine and lockdowns in China as the causes of inflation.

Inflation and growth rate

At the same time, the US Federal Reserve has revised downwards its estimates for the US economy, which now forecasts that it will expand by 1.7% this year, down significantly from 2.8% in the previous year. March.

A similar growth, ie 1.7%, is expected in the US growth rate in 2023, before slightly strengthening in 2024.

At the same time, the Fed raised its forecast for the unemployment rate, which stands at 3.7% at the end of this year, with a tendency to rise to 4.1% by 2024.

In terms of prices, even with the most aggressive stance adopted by the Fed today, policymakers estimate that inflation will reach 5.2% this year from 4.3% in the previous forecast, while the structural Inflation, excluding food and energy prices, is expected to reach 4.3%, 0.2% higher than the previous forecast.

Inflation is expected to decline significantly in 2023, to 2.6% and to 2.7% structural, forecasts almost unchanged compared to March, and then gradually decline to 2.2% in 2024.

It is noted that the Fed chairman of Kansas City, Esther George was the only member of the Commission who disagreed with today’s decision of the FOMC, preferring to raise interest rates by 50 basis points.