The Federal Reserve has projected a hawkish tilt in their latest interest rate decision, indicating that the benchmark overnight interest rate will rise from 5.00-5.25 percent to 5.50-5.75 percent by the end of the year. Out of the 18 Fed officials, half of them have penciled in their “dot” at that level, with three seeing the policy rate moving even higher, including one official who sees it rising above 6 percent. Meanwhile, two Fed officials see rates staying put, and four have projected a single additional quarter-percentage-point increase as likely appropriate. However, policymakers forecast up to 100 basis points of rate cuts in 2024, alongside fast-falling inflation.
Investors are likely to expect a resumption of quarter-percentage-point rate increases after combing through the rate outlook and the projections, starting from the next policy meeting in July. This economic shift also coincides with an improved view of the economy and, consequently, slower progress in returning inflation to the central bank’s 2 percent target.
The Fed officials project that economic growth in 2023 will surpass the previous forecast, with an increase from 0.4 percent in March to 1 percent. They have also adjusted their projection for the unemployment rate, with a forecast of 4.1 percent by the end of the year, compared to 4.5 percent in the March outlook. The current unemployment rate as of May is 3.7 percent. As a result, the stronger-than-anticipated economy means that inflation will fall more slowly, with the core Personal Consumption Expenditures Price Index dropping to 3.9 percent by year’s end, compared to a 3.6 percent year-end rate seen in the March projections.
The Federal Reserve’s decision to end a run of 10 consecutive rate hikes was delivered as a response to inflation’s worst outbreak in 40 years, with a series of aggressive policy moves, including four outsized rate increases of three-quarters of a percentage point last year. The central bank’s policy rate, which influences household and business borrowing costs throughout the economy, rose by a full 5 percentage points from the onset of the tightening cycle in March 2022, reaching the highest level since just before the start of the 2007-2009 recession.
Automotive News contributed to this report.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.