Federal Reserve Raises Rates by Another Three-quarters of a Percentage Point
At its September meeting, the Federal Reserve raised benchmark interest rates by another three-quarters of a percentage point and signaled it will continue to raise rates to attempt to reduce inflation.
The rate-setting Federal Open Market Committee (FOMC) took the federal funds rate up to 3%-3.25%, the highest it has been since early 2008. The Fed also indicated it expects to raise rates by at least 1.25 percentage points in its two remaining meetings this year and that it will continue to raise rates until the funds level reaches a terminal rate of 4.6% in 2023.
The “dot plot” of individual FOMC members’ expectations did not indicate rate cuts until 2024. It showed as many as three rate cuts in 2024 and four in 2025, which would take the funds rate to a median outlook of 2.9%.
The meeting’s statement, which received unanimous approval, noted that “recent indicators point to modest growth in spending and production” and “inflation remains elevated.”
Additionally, the Fed has been reducing its amount of bond holdings. In September, the Fed began “quantitative tightening,” allowing up to $95 billion a month in proceeds from maturing bonds to roll off its $8.9 trillion balance sheet.