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The Federal Open Market Committee raised interest rates by 75 basis points, and suggested that rates will rise faster than previously expected.
The Summary of Economic Projections now shows the fed funds rate above 3% by the end of 2022 and near 4% by the end of 2023, well ahead of previous estimates, before settling back below 3.5% in 2024.
Kansas City Federal Reserve Bank President Esther George dissented at the meeting, saying she preferred a smaller 50-basis point increase.
The FOMC noted that economic activity has rebounded after a slowdown in the first quarter and that inflation remains elevated. The war in Ukraine continues to put upward pressure on prices and COVID-related lockdowns in China are likely to make supply-chain issues worse, the statement said.
As a result, the FOMC repeated that further increases in the fed funds will likely be appropriate and said that it will continue its balance sheet reduction plan.
“The Committee is strongly committed to returning inflation to its 2 per cent objective,” the statement showed. The updated Summary of Economic Projections now suggests a target range of 3.25% to 3.5%, or a 3.4% median, by the end of 2022, 175 basis points above the current level, with an additional two hikes in 2023 to around 3.8% before reversing to 3.4% in 2024, still above the long-term neutral rate of 2.5%.
The outlook for PCE inflation was adjusted higher to 5.2% for 2022, with core prices now seen up 4.3%, above the 4.3% and 4.1% expectations, respectively, in the March SEP. Inflation was little revised for 2023 and 2024.
GDP growth was revised lower for each of the next three years, while expectations for the unemployment rate were revised higher in those years.
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