CNBC reported on Dec. 15, 2022 that the Federal Reserve (Fed) decided to raise its policy rate by 0.50%, its highest level in 15 years, indicating that the fight against inflation is not over. Although there are bright signs in the latter.
The Monetary Policy Committee (FOMC) voted (on December 15, Thailand time) to raise the interest rate by 0.50% to 4.25-4.5% by raising interest rates this time, beating a hike record 0.75% in the last four meetings, the most aggressive policy move since the early 1980s.
While there are indications that Fed officials plan to keep interest rates higher through 2023, with no cuts through 2024, the final rate expected to end the hike is 5.1% according to the “dot plot of the FOMC
The new interest rate level is the highest level held by the Fed since December 2007 before the global financial crisis. And while the Fed is easing policy to fight the worst economic downturn since the Great Depression,
And now the Fed is raising interest rates in what is expected to be a deteriorating economy in 2023. The Fed will raise interest rates to 5.1% next year, which equates to a target range of 5- 5.25% at that point. it will likely suspend interest rate hikes to let the impact of monetary policy tightening hurt the economy.
The consensus therefore points to a full rate cut in 2024, with a rate cut to 4.1% by the end of that year. This will be followed by a further 1.00% rate hike in 2025 to 3.1% before interest rates fall to the long-term mid-range of 2.5%.
However, the outlook is relatively broad for the years ahead, indicating that Fed members are uncertain what will happen next for an economy grappling with some of the worst inflation it has seen since the early 1980s .
A new dot chart features above-median interest rates for 2023 and 2024. For 2023, seven out of 19 board members, including voters and non-voters, see interest rates rise more than 5.25%. median 4.1% in 2024.
FOMC Policy Statement Approved Unanimously Not much has changed since the November meeting. Some observers expected the Fed to change the language it saw. “steadily increasing” moves towards something less busy But that phrase has remained in the manifesto. Fed officials believe that raising interest rates will help withdraw money from the economy. Decrease demand and ultimately lower inflation. After inflation hits its highest level in more than 40 years,
Meanwhile, the FOMC lowered its 2023 growth target, projecting GDP growth by just 0.5%, above what would be considered a recession. 0.5% in the September forecast. The council forecasts growth of 0.2% this year and 1.2% next year.
The committee also raised its median forecast for its popular core inflation gauge to 4.8%, up 0.3 percentage points from its September forecast. Members slightly lowered their outlook for the unemployment rate this year. and slightly higher in subsequent years.
The Labor Department reported on Tuesday that the consumer price index (CPI) rose just 0.1% in November. This was a smaller than expected increase as the 12-month rate fell to 7.1%. Excluding food and energy, the core CPI rate stood at 6%. Both measures were at their lowest levels since December 2021, levels the Fed has placed more weight on. The main price index of personal consumption expenditure fell at an annualized rate of 5% in October. However, all reported inflation remains above the Fed’s 2% target. Officials have stressed the need to see inflation fall steadily. He warned against relying too much on trends in a few months.
Furthermore, central banks believe they have plenty of time to raise interest rates. as employment remains strong and consumers, who drive economic activity. About two-thirds of the US is still spending. Nonfarm payrolls grew faster than expected to 263,000 in November, while the Atlanta Fed is reporting 3.2% GDP growth in the fourth quarter. Retail sales grew 1.3% in October and 8.3% year over year. It indicates that so far consumers are facing an inflationary storm.
Inflation arises from the confluence of at least three factors: excess demand during a pandemic that has severely disrupted supply chains; Russia’s invasion of Ukraine coincides with rising energy prices. and trillions in monetary and fiscal stimulus.
Reference: https://www.cnbc.com/2022/12/14/fed-rate-decision-december-2022.html
