The Fed raises rates by 50 basis points and sees the US economy about to stagnate

The Federal Reserve raised interest rates by half a percentage point on Wednesday and forecast at least 75 basis points more hikes through the end of 2023, as well as a rise in unemployment and a coming stagnation of economic growth.

The US central bank’s forecast that the federal funds target rate will rise to 5.1% in 2023 is slightly higher than investors expected ahead of this week’s two-day policy meeting.

Only two of the 19 Fed officials saw the benchmark overnight interest rate below 5% next year, a sign they still feel the need to battle inflation that has been at 40-year highs.

“The (Federal Open Market) Committee is very attentive to inflation risks (…) Continued increases in the target range will be appropriate to achieve a sufficiently restrictive monetary policy stance to return inflation to 2% with time,” the Fed said in a statement almost identical to the one at its November meeting.

The unanimously approved new statement was released after a meeting in which officials pared rate hikes by three-quarters of a percentage point from the past four meetings.

The Fed’s key interest rate, which started the year near zero, is now in a target range of 4.25% to 4.50%, the highest since late 2007.

Federal Reserve Chairman Jerome Powell is scheduled to hold a press conference at 19:30 GMT to elaborate on the monetary policy meeting, which was the last of 2022.

The new rate outlook, a rough estimate of where officials think they can pause in their current rate hike cycle, was released alongside economic projections showing a protracted battle with the inflation yet to comeand with near-recessionary conditions developing throughout the year.

Under the Federal Reserve’s preferred measure, inflation will remain above the 2% target at least until the end of 2025, and will remain above 3% by the end of next year.

The average unemployment rate is projected to rise to 4.6% over the next year from 3.7% now, an increase that exceeds the level historically associated with a recession

Gross domestic product will grow by just 0.5% next year, the same as in 2022, before increasing to 1.6% in 2024 and 1.8% in 2025, a level considered the long-term potential of the economy .

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