Fed Slows Pace Of Interest Rate Hikes But Forecasts Higher Terminal Rate
(RTTNews) - After raising interest rates by three-quarters of a percentage point at four consecutive meetings, the Federal Reserve on Wednesday slowed the pace of rate increases but still signaled further rate hikes.
In a widely expected move, the Fed announced its decision to raise interest rates by 50 basis points, or half a percentage point, to a target range of 4.25 to 4.50 percent.
The text of the Fed's accompanying statement was largely unchanged from last month, however, with the central bank reiterating that it anticipates ongoing increases in rates will be appropriate.
The economic projections provided along with the announcement also suggest the Fed expects rates to ultimately be raised higher than forecast back in September.
The median forecast suggests rates will be raised to a so-called terminal rate of 5.1 percent next year compared to the September projection of 4.6 percent.
The expectations for higher rates come as the Fed expects inflation to remain elevated in 2023, raising its forecasts for annual price growth.
Consumer price growth is expected to slow to 3.1 percent next year from 5.6 percent this year, but that is still up from the 2.8 percent forecast in September and well above the Fed's 2 percent target.
Potentially reflecting the impact of higher rates, the Fed's forecast for GDP growth in 2023 was lowered to 0.5 percent from 1.2 percent in September.
The Fed's next monetary policy meeting is scheduled for January 31-February 1, with CME Group's FedWatch Tool currently indicating a 47.7 percent chance of another 50 basis point rate increase and a 42.8 percent chance of 25 basis point rate hike.
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