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On Wednesday, the Federal Reserve approved a third consecutive 75-basis-point hike in an effort to curb the inflation plaguing the US economy.
The hike was deemed unfathomable by markets months earlier.
However, it has taken the central bank’s benchmark lending rate to new heights with a target range of 3% to 3.25%.
The recent hike makes it the highest fed funds rate has reached since the global financial crisis in 2008.
The Wednesday decision is the Fed’s toughest policy move since its 1980 decision, which was also to combat inflation.
The rate hike will likely create economic problems for millions of American businesses and households by pushing up the cost of loans for homes, cars, and credit cards.
Jerome Powell, the Chairman of the Federal Reserve, acknowledged the economic pain the rapidly tightening regime may cause.
On Wednesday afternoon, a press conference was held after the central bank’s policy announcement following a two-day monetary policymaking meeting.
“No one knows whether this process will lead to a recession or, if so, how significant that recession would be,” said Powell.
The Fed also released an updated Summary of Economic Projects, which reflects the pain.
The quarterly report showed a less optimistic outlook for economic growth and the labor market.
The median unemployment rate inched up to 4.4% in 2023, which is higher than the 3.9% Fed officials initially projected in June.
It is also substantially higher than the current rate (3.7%).
In June, US gross domestic product, the main measure of economic output, was revised from 1.7% to 0.2%.
The numbers fall below analysts’ estimates as economists from Bank of America initially estimated the GDP would be revised to 0.7%.
Meanwhile, inflation projection also grew.
Fed’s SEP showed that the Core Personal Consumption Expenditures is projected to 4.5% this year and 3.1% next year.
The numbers are up from June projections of 4.3% and 2.7% respectively.
The projection of the federal funds rate is what’s most important to investors seeking forward guidance from the Fed.
It outlines what officials think is the correct policy path for rate hikes going forward.
The numbers released on Wednesday shows that the Federal Reserve expects interest rates to stay high for years.
The median federal funds rate projection was also revised from 3.4% to 4.4% in June.
The number is set to rise from 3.8% to 4.6% next year.
The rate projection was also revised from 3.4% to 3.9% for June 2024 and is expected to remain elevated at 2.9% in 2025.
Overall, the new projections show a growing risk of a hard landing – monetary policy is expected to tighten to the point of a possible recession.
The projections also show proof that the Fed is willing to endure some hardships in economic conditions to bring down persistent inflation.
According to Moody’s Analytics, higher prices would indicate consumers spending around $460 more monthly on groceries than they were last year.
However, the job market and consumer spending are areas that remain strong.
Many places show that housing prices are still high despite a substantial spike in mortgage rates.
The Feds may feel the economy can continue enduring aggressive rate hikes.
Opinions expressed by NY Weekly contributors are their own.