The Fed Indicates Another Rate Hike in 2023 Before Concluding Hiking Endeavors

The Federal Reserve opted for stability on Wednesday but projected a single interest rate increase later this year, as indicated by the central bank’s latest forecasts. The released projections from the Fed revealed their intention to increase rates to a median of 5.6% by the conclusion of 2023, surpassing the existing range of 5.25% to 5.5%. Among the officials present at the meeting, twelve were in favor of this additional increase, while seven opposed it. There remain two policy meetings for the rest of the year. In 2024, the rate-setting Federal Open Market Committee foresaw two rate cuts, a reduction of two from their June forecast. This adjustment would position the fund’s rate at approximately 5.1%. The decision to project fewer rate cuts for the upcoming year primarily stems from the Fed officials’ positive outlook on economic growth rather than concerns about persistent inflation, emphasized Fed Chair Jerome Powell during a press conference. “In a general sense, heightened economic activity implies a need for further adjustments in rates, and that’s the message from this meeting,” Powell explained.

The dot plot for 2025 also saw an upward shift, with the median projection at 3.9%, compared to the previous 3.4%. Additionally, members of the Fed updated their Summary of Economic Projections, significantly revising their economic growth projections for 2023. The Committee anticipates a 2.1% increase in gross domestic product this year, more than double the 1% estimate provided in June. The Fed foresees a slowdown in the core personal consumption expenditures price index to 3.7%, a 0.2 percentage point decrease from June’s forecast. Powell conveyed that the Fed remains cautiously optimistic about inflation’s trajectory. “We need substantial evidence that we’re moving in the right direction and making progress, and we welcome that,” Powell affirmed. “However, we need further evidence before drawing a definitive conclusion.” The unemployment rate projection 2023 now stands at 3.8%, a decrease from the previous 4.1%.