In a much-anticipated move, the Federal Reserve approved an interest rate hike of a quarter of 1% Wednesday, the first time the board has raised rates since 2018. The Fed also indicated it will raise rates incrementally at each of its six remaining meetings this year. The total increase for 2022 would be 1.75%, with three more interest rate hikes planned for 2023 and none in 2024. That could of course change depending on how the economy is faring and unforeseen developments.
Rates have remained near zero since the COVID pandemic began as a way to stimulate spending, but continuing inflation prompted the Fed to draw down its bond buying then begin interest rate hikes.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the Federal Open Market Committee said in a statement announcing the raise.
The FOMC indicated short-term interest rates would be 2.5-3% by the end of 2024 and that inflation will be down to 2.3% by that time.
In December, the Fed had signaled there would be three interest rate hikes in 2022. Persistent inflation and world events have caused the Fed to act more aggressively.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity,” the statement said.
St. Louis Fed president James Bullard wanted to raise rates by 50 basis points, while the other board members agreed on the 25 points announced Wednesday. The Fed’s next meeting is set for May 3-4, and we now that it’s a virtual guarantee that they’ll vote in another interest rate hike then.