Fed reveals latest rate decision, signals one more hike this year

investmentnews.com:

The Federal Reserve left its benchmark interest rate unchanged while signaling borrowing costs will likely stay higher for longer after one more hike this year.

The central bank’s policy-setting Federal Open Market Committee, in a post-meeting statement released Wednesday, repeated language saying officials will determine the “extent of additional policy firming that may be appropriate.”

The FOMC held its target range for the federal funds rate at 5.25% to 5.5%, while updated quarterly projections showed 12 of 19 officials favored another rate hike in 2023, underscoring a desire to ensure inflation continues to decelerate.

Fed officials also see less easing next year, according to the new projections, reflecting renewed strength in the economy and labor market.

They now expect it will be appropriate to reduce the federal funds rate to 5.1% by the end of 2024, according to their median estimate, up from 4.6% when projections were last updated in June. They see the rate falling thereafter to 3.9% at the end of 2025, and 2.9% at the end of 2026.

Yields on two-year US government bonds rose after the decision, while the dollar pared declines against major peers and the S&P 500 index of stocks erased earlier gains. 

Fed Chair Jerome Powell will expand on the policy decision and the new projections at a 2:30 p.m. press conference.

After a historically rapid tightening that took the federal funds rate from nearly zero in March 2022 to above 5% in May of this year, the central bank has in recent months pivoted to a slower pace of increases.

The new tack seeks to let incoming data determine the peak level for interest rates as inflation decelerates toward the 2% target. The Fed’s preferred index of prices, excluding food and