The Fed raises interest rates, which happens. Powell: “Restrictive Policy”

The Fed raises interest rates, which happens.  Powell: “Restrictive Policy”

As announced by Jerome Powell and widely expected by analysts, in December the Federal Reserve slowed down with one last rate hike for 2022 by 50 basis points.

At the end of the two days of the Federal Open Market Committee, the Fed Funds thus move to the target range of 4.25%-4.5% compared to the previous 3.75%-4%. In the Summary of Economic Forecasts, which summarizes the performance projections for the US economy prepared by the presidents of the various Fed districts, the median forecast for rates for 2023 changes from 4.6% to 5.1% in December, while for 2024 it increases to 4.1% in December, from 3.9% in September. The Fed sees modest growth in spending and output in recent months, with “robust” job growth and an unemployment rate that “remained low”.

On the other hand, inflation remains high, “due to imbalances in supply and demand linked to the pandemic, rising food and energy prices and broader pressures on prices”. At the press conference, Powell reiterated that the Fed “we are strongly committed to bringing inflation back to the 2% target”, even though “we have other work to do”.

According to Powell, the Fed “has not yet come to a tight enough policy stance, which is why we say we expect continued increases to be appropriate.” “It’s not so much about how fast we move, it’s about what the final level will be” of rates, he underlined. “At some point the question will be ‘how long are we going to stay restrictive?'”, adds Powell, explaining that now “the most important issue is no longer speed”, and it is also valid “for February”, when the Fed decides how to move on rates “based on data received and the position of the economy”.

Forecasts also show that US GDP is expected to grow by 0.5% in 2023, a forecast considerably lower than what the Federal Reserve estimated in September (+1.2%). In 2023, GDP is expected to grow by 1.6%, just 0.1% less than the previous forecast. On the inflation side, the PCE (Personal Consumption Expenditure) indicator rises to 5.6% in 2023, after forecasting 5.4% in September. The 2023 figure rises to 3.1% from 2.8% expected in September, while it will slow to 2.5% in 2024, albeit 0.2% higher than forecast three months ago.

Source: IL Tempo