Fed raises rates, signals aggressive battle against inflation

The Fed (Federal Reserve) raised interest rates by 0.25 percentage point on Wednesday (16) and projected that its base rate would reach a range between 1.75% and 2% by the end of the year, in a new aggressive stance. against inflation that will drive borrowing costs to restrictive levels in 2023.

In a new monetary policy statement that marks the end of its all-out battle against the coronavirus pandemic, the U.S. central bank signaled the massive uncertainty facing the economy with the war in Ukraine and the ongoing health crisis, but still said that continued increases in the so-called “fed funds” target will be adequate to contain the highest inflation in 40 years.

The text left out the direct reference to the coronavirus pandemic, but cited the war in Ukraine as a factor of “additional upward pressure on inflation” and a weight on economic activity.

The new statement said the Fed expects to begin reducing its nearly $9 trillion balance sheet “at an upcoming meeting,” a topic likely to be addressed by Fed Chairman Jerome Powell at a news conference. scheduled to start at 3:30 pm (Brasília time).

The chairman of the Fed of St. Louis, James Bullard, was the only monetary policymaker to disagree with the Fed’s decision.

Fed members’ forecast path points to stronger-than-expected monetary policy movement

The interest rate trajectory shown in the Fed’s new policymakers’ forecasts came out harsher than expected. This reflects the US central bank’s concern about inflation, which has moved faster and threatened to become more persistent than estimated. In addition to putting at risk the hope of an easier change in relation to the emergency monetary policies put in place to combat the consequences of the pandemic.

Even with the tighter rate hikes now projected, inflation is expected to remain above the Fed’s 2% target, staying at 4.1% this year and falling to just 2.3% through 2024. .8% for this year, a sharp drop from the 4.0% rate projected in December.

The unemployment rate is expected to drop to 3.5% this year and stay there the next, but is expected to rise slightly to 3.6% in 2024.