Federal Reserve Raises Interest Rates to Highest Since 2007, Sees Higher Rates in 2023
On Wednesday, December 14th, the Federal Reserve raises short-term interest rates by .50%, the highest since 2007, and suggested that will continue in 2023. The Fed funds rate range is currently at 4.25%-4.5%.
The .50% increase on Wednesday was a reduction from the previous .75% increase seen at each of the last four policy meetings. This was the most aggressive increase seen since the 1980s. Fed chair Jerome Powell said, “over the course of the year, we have taken forceful actions to tighten the stance of monetary policy.” He also stated, “the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do.”
The Federal Reserve has implied that it does not plan to pause rate hikes any time soon, saying they anticipate “ongoing increases” in interest rate hikes. Their statement said, “the committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”
Economic forecasts from the Fed now put interest rates peaking at 5.1% in 2023, 50 points higher than the previously predicted 4.6% back in September, although some officials estimate rates rising to 5.25-5.6% in 2023. The Fed also forecasts rates to drop down to 4.1% in 2024. Unemployment is expected to rise to 4.6% next year and remain around that level through 2024. Economic growth is expected to be below average in 2023 at 0.5% and 1.6% in 2024.
When asked if these forecasts predict the economy falling into a recession, Powell responded, “I don’t think it would qualify as a recession, because you’ve got positive GDP growth.”
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