The Federal Reserve announced a 50 basis points rate increase yesterday at its December meeting to tame inflation. This half a percentage point rate hike was highly expected by the markets and brought the Fed’s benchmark to a range of 4.25% – 4.50%. In 2022, the Fed raised interest rates for seven consecutive times (+25 bps in March, +50 bps in May, +75 bps in June, +75 bps in July, +75 bps in September, +75 bps in November, and +50 bps in December). The smaller rate hike came after a lower than expected prices data. The latest US CPI from the US Bureau of Labor Statistics showed that inflation slowed to 7.1% in November 2022, from 7.7% in October. During the press conference, Fed Chair Powell reiterated their strong commitment to bringing inflation down to their 2% target.
The FOMC also released its economic projections. The “dot plot” indicated that the members expect to end the rate hikes at 5.1% in 2023, pointing to a rate cut not until 2024. PCE inflation is also revised upwards, expected to reach 3.1% in 2023 (from 2.8% September projection), 2.5% in 2024 and 2.1% in 2025. The unemployment rate was revised slightly higher as well, expected to rise to 4.6% by next year. Projections for GDP growth were cut back for 2023, indicating just a 0.5% expansion (from the 1.2% projected in September). Following the Federal Reserve’s announcement and hawkish tone, US stocks fell Wednesday.