MNI: Fed Hikes Rates By 75BPS, Sees 4.6% Peak Rate

The Federal Reserve on Wednesday raised interest rates by another aggressive 75 basis points, the third such increase in as many meetings and part of the most accelerated rate hike campaign since the Volcker era, while charting a more aggressive path for how high rates need to go to control inflation.

The increase brought the federal funds rate to a range between 3% and 3.25%. The Fed also sharply boosted its forecast for where interest rates are likely to peak next year to 4.6% from its June forecast of 3.8%.

“Recent indicators point to modest growth in spending and production,” the FOMC said in a statement.

The Fed’s view of PCE inflation was revised higher to 5.4% at the end of 2022 from 5.2% in June while officials now see the measure closing 2023 at 2.8%, up from 2.6% in the last SEP.

Investors’ views of the Fed’s terminal rate have been revised sharply higher toward 4.5% since the release earlier this month of August CPI data showing persistent and broad-based inflation, including a core reading that jumped 0.6% on the month.

The Fed’s unemployment rate forecast was bumped up to 4.4% at the end of next year and that is expected to persist into 2024.

The FOMC’s latest tightening move comes as economists worry about the possibility of a recession, and as a highly-rate sensitive housing market continues to take a sharp hit from a surge in mortgage borrowing costs past 6%.

Fed Chair Jerome Powell will take questions from reporters starting at 2:30 pm. He will likely be asked about the Fed’s appetite for possibly slowing the pace of rate hikes from the torrid recent clip, as well as how much pain the central bank is willing to inflict on the economy and the labor market in order to return inflation to its 2% target.

The Fed’s year-end 2022 projection is now 4.4%. The Fed has two more meetings this year, in November and December.