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Fed Raises Interest Rates

The Federal Reserve raised interest rates by 0.75% for a third consecutive meeting, according to The Wall Street Journal (subscription). 

What’s happening: The Fed’s board unanimously agreed to lift the benchmark federal fund rate to a range between 3%–3.25% in order to put a dent in inflation. The Fed will likely increase rates by another 1.25% points by year’s end.

The effects: The Fed expects higher unemployment next year. Core inflation, which excludes volatile food and energy prices, is projected to moderate from the current pace but remain above the Fed’s goal of 2% in the long term. More importantly (and speaking to the aggressive moves taken by the Federal Open Market Committee), it was also seen as being somewhat stronger than in the June forecast.

  • “Officials projected core inflation would fall to 3.1% by the end of 2023, up from a projection of 2.7% in June.”

Our analysis: The Fed’s economic projections “would seem to imply another 75-basis-point hike at the November 1–2 meeting, followed by a 50-basis-point increase at its December 13–14 meeting,” said NAM Chief Economist Chad Moutray. He added that “it also predicts another 25-basis-point increase in early 2023 before holding, with the federal funds rate not declining until 2024.”

  • “This would suggest a very aggressive stance on the part of the Federal Reserve and a strong statement of the FOMC’s intentions to tackle inflation at any cost,” said Moutray. “With that said, future monetary policy actions will hinge on incoming data.”
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