Fed Hikes Rates by 75 Basis Points, Third Large-size Increase

Brian Turner
21 Sep, 2022
New York City

The Federal Reserve lifted its key lending rate by 75 basis points and reiterated its commitment to fight sky-high inflation. 

"The Committee decided to raise the target range for the federal funds rate to 3 to 3.25% and anticipates that ongoing increases in the target range will be appropriate," noted the Fed statement released Wednesday.  

The Federal Reserve lifted its key lending rate for the fifth time and the third large-size increase in a row as inflation hovers significantly above the Fed's target range of 2%. 

In an unanimous vote, a 12-member committee voted to increase the rate by 75 basis points as the Fed lags sky-high inflation by a wide margin. 

Policymakers are belatedly lifting rates in an effort to slow down tame inflation by curbing demand but much of the inflation is driven by rising prices of energy, intermediate products and services. 

The Fed is caught between a difficult choice of lifting rate too slow and inflation accelerates even more and too fast and the economy cools down faster and dips into a recession.  

In a press conference after the rate decision, Fed Chair Powell highlighted that inflation is too high and core PCE is still running at or above 4.5% and the recent rate increases are not having desired effects in cooling inflation. 

"Shelter inflation is going to remain high for some time," chairman Powell stated towards the end of a question answer session. 

The Fed's belated action is less likely to impact supply-driven inflation and may dip the economy into a deeper recession and impair robust labor markets. 

The estimate for the U.S. economic growth in 2022 was lowered to 0.2% from the previous estimate of 1.7% released in June, according to the projections released by the FOMC.  

The 2023 growth projection was lowered to 1.2% from 1.7% and 2024 growth to 1.7% from 1.9% and the 2025 rate was estimated at long-term rate growth of 1.8%. 

 

Live Press Conference Link 

https://www.youtube.com/watch?v=ukFnKCtptX4