SEPTEMBER 26, 2022 — FED INSTITUTES ANOTHER AGGRESSIVE RATE HIKE
The Federal Reserve raised rates by another 0.75 percent last week, the third 0.75 percent raise in a row as the Fed tries to tame inflation. The Fed expects its terminal-rate, or end point, to reach 4.6 percent in 2023, and indicated they plan to stay aggressive, with rates expected to reach 4.4 percent by next year.
Inflation has been running at its highest pace since the early 1980’s forcing the central bank to take the federal funds rate up to a range of 3.0 to 3.25 percent, the highest since early 2008. The Fed expects to raise rates by at least 0.25 percent in its last two meetings of 2022. The message remains the same: “The Fed is strongly resolved to bring inflation down to 2 percent and will keep at it until the job is done.” The hopes are, that by December, core inflation will be down to 5.4 percent.
With a terminal-rate of 4.6 percent targeted for 2023, a quarter-point increase will be needed next year with no anticipated decreases. The “dot-plot” of the individual Fed members shows no rate cuts are expected before 2024. The Fed realizes their actions will have consequences; unemployment is expected to rise to 4.4 percent next year from the current 3.7 percent; and unemployment increases that big are often accompanied by recessions. The Fed thinks GDP will slow to 0.2 percent in 2022, rising slightly to 1.8 percent in 2023.
Long term, expectations are for three rate cuts in 2024 and four more in 2025, with a long-range funds rate in the area of 2.9 percent.