December 19, 2022 — Fed Raises Rates by 0.5 Percent as Inflation Eases


The Federal Reserve closed out 2022 by raising rates by 0.5 percent in an aggressive move to curtail inflation that is running at a 40-year high. The benchmark rate is now in a range of 4.25 to 4.5 percent, a 15-year high. This is the seventh time the Fed raised rates this year.  The December increase is lower than the four consecutive 0.75 percent hikes that have last taken place. The interest rate will continue to rise in 2023, with a 0.25 percent increase expected at the next two Fed meetings. The Fed is aiming for rates to climb to a range between 5 and 5.5 percent once all is done.

Federal Reserve officials expect the economy to slow down in 2023. Unemployment is estimated to rise to 4.6 percent, compared to the 3.7 percent rate reported in November.  The good news is inflation eased in November, coming in at 7.1 percent, down from 7.7 percent in October. Core CPI rose 6 percent, down from 6.3 percent in October.

 The Fed is now in a phase of trying to determine how high to raise rates. Rates hikes work on a lag, so the effects of higher rates may not be evident for a year or more. Fed Chair Powell stated that they are not likely to consider lowering rates until inflation is closing in on their 2 percent target.