The Federal Reserve’s Open Market Committee (FOMC) has released its latest economic projections, which show that the central bank expects to raise interest rates by a total of 75 basis points in 2023 and 2024.
This would bring the target range for the federal funds rate to 5.00% to 5.25% by the end of 2024.
The FOMC also projects that it will not begin to lower interest rates until after 2025, and that the federal funds rate will remain above 5% through 2026.
These projections are more hawkish than the market had expected, and they suggest that the Fed is committed to bringing inflation down to its 2% target even if it means slowing economic growth.
Here are some of the key takeaways from the FOMC’s projections:
- The Fed expects inflation to remain elevated in 2023, with the core PCE price index rising by 3.5% year-over-year.
- The Fed expects economic growth to slow in 2023, with real GDP growth of 0.5%.
- The Fed expects the unemployment rate to rise to 4.6% by the end of 2023.
- The Fed expects to raise interest rates by a total of 75 basis points in 2023 and 2024.
- The Fed expects to begin lowering interest rates after 2025.
The FOMC’s projections are based on a number of assumptions, including that:
- The war in Ukraine will not escalate.
- The global economy will continue to grow.
- Financial markets will remain stable.
If any of these assumptions change, the FOMC’s projections could change as well.
The FOMC’s projections are a reminder that the Fed is committed to fighting inflation.
While the Fed’s actions could lead to a slowdown in economic growth, they are necessary to bring inflation down to its target.
The Fed’s projections also suggest that the market may have been too optimistic about the possibility of rate cuts in 2023 and 2024.
Kind regards E. Thompson.
