After four 75 basis point hikes, the Federal Open Market Committee decided to end the year with a 50 basis point hike.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent.
Jobs & Inflation. In their statement, the FOMC did not waiver on their concerns about inflation data and the heated labor market. They noted that the war in Ukraine continues to put “upward pressure on inflation and are weighing on global economic activity.”
- Labor Market: “Job gains have been robust in recent months, and the unemployment rate has remained low.”
- Inflation: “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures...The Committee is highly attentive to inflation risks.”
The Future. The FOMC’s summary of economic projections was not very optimistic about a return the pre-pandemic norm. Meeting participants believe the fed funds rate will remain above 3% through 2025, that real GDP growth will stay under 2% for the next three years, and that inflation will remain above the target rate through 2025.
- Federal Fund’s Rate: Meeting participants believe it will hit a peak of 5.1% in 2023 and will remain above 3% through 2025.
- Inflation: Meeting participants think inflation has already peaked but will remain above 3.0% in ’23, fall to 2.5% in ’24, and remaining above 2.0% through ’25
- GDP: Meeting participants believe real GDP will end this year and 2023 up 0.5%. they believe it will rise 1.6% in 2024 and will reach 1.8% in 2025.