The US Federal Reserve raised interest rates by another 75 basis points on Wednesday, with officials predicting a sizable economic slowdown in 2022.
That puts the federal funds rate—or the rate at which the Fed lends to banks—at 3.25%, up from 2.5% previously.
“Reducing inflation will likely require a sustained time of below trend growth,” said Federal Reserve chair Jerome Powell. “We will keep at it until we’re confident the job is done.”
The Fed’s latest quarterly economic forecast, which it also released Wednesday, shows a decidedly less optimistic view of the central bank’s ability to curb inflation. Officials don’t expect to see their favorite inflation measure—the personal consumption expenditure index—anywhere near the Fed’s 2% target until 2024.
So while three months ago officials predicted interest rates would be at 3.4% by the end of 2022, they now see the Fed raising them up to 4.4%, according to the summary of economic projections, which collects the views of Fed’s board of governors.
They also no longer see the Fed backing off from interest rate hikes in 2023 like they had forecast in June. The median view of Fed officials is that the Fed’s fund rate will be 4.6% by the end of next year, and then 3.9% by the end of 2024.
Fed officials also cut their economic growth outlook for 2022 in the face of declining output, global shortages, and monetary tightening. They now see the US economy growing by 0.2% this year, down from the 1.7% they forecast in June.
Fed officials have less of a dismal view of the labor market, predicting the unemployment rate—currently 3.7%—moving up to 3.8% by the end of the year and 4.4% by the end of next year.
But some are skeptical about the Fed’s projections, given the pace of expected interest rate hikes. “An unemployment rate that rises from 3.5% to 4.4% is not an unemployment rate that peaks at just 4.4%,” wrote Skanda Amarnath, executive director at Employ America. “Everyone should assume the Fed is committed to engineering a recession.”