Federal Reserve approves first interest rate hike in more than three years, sees six more ahead
The Federal Reserve on Wednesday approved its first interest rate increase in more than three years, an incremental salvo to address spiraling inflation without torpedoing economic growth.
After keeping its benchmark interest rate anchored near zero since the beginning of the Covid pandemic, the policymaking Federal Open Market Committee said it will raise rates by a quarter percentage point, or 25 basis points.
That will bring the rate now into a range of 0.25%-0.5%. The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing and credit.
Along with the rate hikes, the committee also penciled in rate hikes at each of the six remaining meetings this year, pointing to a consensus funds rate of 1.9% by year's end. The committee sees three more hikes in 2023 then none of the following year.
The rate hike was approved with only one dissent. St. Louis Fed President James Bullard wanted a 50-basis-point increase.
The committee last raised rates in December 2018, then had to backtrack the following July and begin cutting.
In its post-meeting statement, the FOMC said it also «anticipates that ongoing increases in the target range will be appropriate.» Addressing the Fed's nearly $9 trillion balance sheet, comprised mainly of Treasurys and mortgage-backed securities it has purchased over the years, the statement said: «In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.»
The indication for about 175 basis points in rate increases this year was a close call: The «dot plot» of individual members' projections showed eight members expecting more
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