The Federal Reserve announced a 0.25% interest rate hike on Wednesday—the first increase since 2018, while also forecasting a more-than-expected six additional hikes this year, as the central bank looks to combat surging inflation and ease concerns about the economic impact from Russia’s invasion of Ukraine.
The Federal Reserve raised interest rates by a quarter percentage point—the first increase in more than three years—as it looks to address surging inflation, which remains at 40-year highs, up 7.9% from a year ago.
Fed officials said in a statement that they predict six more rate hikes this year and three more in 2023 (up from a previous forecast of three rate hikes each year).
The central bank now sees a consensus federal funds rate of 1.9% by the end of 2022, though it “anticipates” that ongoing increases in the target rate “will be appropriate.”
Fed policymakers had been indicating for months that they would begin raising rates in March, starting with a 0.25% increase, although Fed Chair Jerome Powell had stressed before the meeting that the central bank is prepared to raise interest rates “more aggressively” if higher inflation persists.
Fed officials have also been warning about the “highly uncertain” economic impact from Russia’s invasion of Ukraine, describing that the conflict is likely to “create additional upward pressure on inflation and weigh on economic activity.”
The central bank now forecasts higher inflation and lower economic growth in 2022, with the Fed’s projection for US GDP growth this year falling to 2.8% from a previous forecast of 4%.