US Fed raises fed funds rate by 50 bps; raises inflation forecasts

The US Federal Reserve raised the fed funds rate by 50bps to 4.25%-4.5% during its last monetary policy meeting of 2022, pushing up borrowing costs to the highest level since 2007.

This was the seventh consecutive rate hike by the American Central Bank, post its four straight seventy-five basis point increases.

In a statement, the Federal Reserve said that the FOMC seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.

The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.

The Fed now expects interest rates to reach 5.1% next year, 4.1% in 2024, and 3.1% in 2025.

The American Central Bank revised upwards this year's GDP growth projections to 0.5% from 0.2% earlier. It, however, lowered the GDP growth projections for 2023 to 0.5% from 1.2% announced earlier; and for 2024, to 1.6% from 1.7%. The GDP growth rate forecast for 2025 was kept unchaged at 1.8%.

Inflation forecasts were revised higher for 2022 to 5.6% from 5.4%; for 2023 to 3.1% from 2.8%; for 2024, to 2.5% from 2.3%; and for 2025, to 2.1% from 2.0%.

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