The Federal Reserve (the US central bank) raised interest rates by half a percentage point, on Wednesday, and expected to raise them by at least an additional 75 basis points, from increases in borrowing costs by the end of 2023, in addition to high unemployment, and an almost halt in economic growth.
The US Central Bank’s expectation that the target interest rate on federal funds will rise to 5.1 percent in 2023, is slightly higher than what investors expected ahead of the Federal Reserve meeting this week.
Only two of 19 Federal Reserve officials expect the overnight deposit and lending rate to remain below 5% next year, indicating they still feel the need to continue their battle against inflation, which has reached its highest level in 40 years.
“The (Federal Open Market) Committee is very concerned about inflation risks… Continued increases in the target range would be appropriate in order to get monetary policy restrictive enough to return inflation to 2 percent,” the Fed said in a statement almost identical to the one it issued at its November meeting. by the time”.
The new statement, which was approved unanimously, was issued after a meeting during which officials scaled back the rate hike from three-quarters of a percentage point announced after the previous four meetings.
The Fed’s interest rate, which started the year near zero, is now in its target range of 4.25-4.50 percent, the highest since late 2007.
Inflation is expected to remain above the central bank’s target of at least 2 percent until the end of 2025, and will remain above 3 percent by the end of next year.
The average unemployment rate is also expected to rise to 4.6 percent next year from the current 3.7 percent, an increase that exceeds the level historically associated with a recession.
It is also expected that the gross domestic product will grow by only 0.5 percent next year, which is the same rate that was expected for 2022, before growth rises to 1.6 percent in 2024 and 1.8 percent in 2025.