Federal Reserve Raises Interest Rates
The Federal Reserve recently increased the price of borrowing money by a quarter point, its first rate increase since 2018.
Fed officials set 0.25-0.50 percent as the new target range for the federal funds rate, which had been reduced to zero in March 2020 due to the COVID pandemic. Officials also projected a 1.75-2 percent federal funds rate by the end of 2022. Assuming a continued rise in quarter-point increments, rates would increase a total of seven times this year.
In their post-meeting statement, Fed officials noted the uncertainty of the U.S. economy but that in the near term, the conflict between Russia and Ukraine is likely to “create additional upward pressure on inflation and weigh on economic activity.” The Fed expects inflation to remain high throughout 2022. While officials predict inflation will come down more sharply in 2023, they expect it to continue into 2024.
In addition to announcing the seven possible increases for 2022, officials stated they see the fed funds rate reaching a target range of 2.75-3 percent, slightly higher than the neutral rate of interest, by 2023.