US Fed hikes rates by 0.75 percentage point, flags slowing economy

Reuters | | Updated on: Jun 15, 2022
The Federal Reserve building is seen before the Federal Reserve board is expected to signal plans to raise interest rates in March

The Federal Reserve building is seen before the Federal Reserve board is expected to signal plans to raise interest rates in March | Photo Credit: Joshua Roberts

US stocks pared gains slightly after the Fed hike

The Federal Reserve on Wednesday raised its target interest rate by three-quarters of a percentage point on Wednesday to stem a disruptive surge in inflation, and projected a slowing economy and rising unemployment in the months to come.

The action raised the short-term federal funds rate to a range of 1.50% to 1.75%, and Fed officials at the median projected the rate increasing to 3.4% by the end of this year and to 3.8% in 2023 - a substantial shift from projections in March that saw the rate rising to 1.9% this year.

US Market reaction

US stocks pared gains slightly after the Fed hike; S&P last traded higher.

Bonds: US Treasury two-year, 10-year yields rose after the Fed statement.

Forex: The dollar index gained after Fed decision.

The federal funds rate at the end of 2023 is now projected to be 3.8%, up from the March forecast of 2.8%, while the year-end 2024 rate was seen at 3.4% versus 2.8% in March, reflecting an expectation that the central bank will be cutting rates by that time.

Officials edged up their longer-run policy rate to 2.5% from 2.4%.

Inflation - as measured by the annual change in the Personal Consumption Expenditures price index - is seen ending the year at 5.2%, up from a March projection of 4.3%. As of April, the PCE index was up 6.3% on a year-over-year basis, just below a 40-year high touched in March.

Policymakers see the unemployment rate at 3.7% at the end of this year compared with 3.5% in their March forecasts. The US jobless rate was 3.6% in May. (Reporting by Dan Burns Editing by Paul Simao)

Published on June 16, 2022
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