Federal Reserve Issues Fourth Straight 0.75% Interest Rate Hike: Here's What The Fed Says Comes Next In Inflation Fight

The Federal Reserve raised its target fed funds rate by 0.75% on Wednesday to a new range of between 3.75% and 4%, its fourth 0.75% rate hike in five months.

The Fed said it will continue with its previously announced plan to let Treasury securities and agency debt and agency mortgage-backed securities roll off its balance sheet on a monthly basis.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed said in a statement.

The Fed reassured investors that job growth has been strong and the unemployment rate remains low, and said more increases are expected.

"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% over time," the Federal Open Market Committee said in a statement.
The major indexes were trading higher in the wake of the Fed decision Wednesday afternoon, with the S&P 500 up 0.52%, the Dow Jones 0.85% higher and the Nasdaq gaining 0.29%. 

Related Link: Wall Street Braces For Another 0.75% Interest Rate Hike Wednesday After Private Payrolls Growth Comes In Hot

The Economic Context: The statement comes after the Labor Department reported the U.S. economy added 263,000 jobs in September, beating economist estimates of 250,000 jobs. The unemployment rate fell to 3.5%, and hourly wages were up 5% from a year ago.

All 12 Fed members voted unanimously for the 0.75% hike.

Related Link: Wall Street Expects Another 0.75% Interest Rate Hike This Week, But Timing Of Fed Pivot Is Key

The Consumer Price Index (CPI) was up 8.2% in September, down from a 2022 peak of 9.1% in June. The bond market currently projects a 94.4% chance the Fed will raise rates by at least another 0.5% in December.

The SPDR S&P 500 ETF Trust SPY was higher by 0.6% on Wednesday following the announcement.

The Fed's Projections: In September, the Federal Reserve released new “dot plot” economic forecasts. Six of the 19 FOMC members are projecting interest rates will peak at a range of between 4.75% and 5% in 2023. Twelve of the 19 FOMC members see rates rising to a range of between 4.5% to 4.75% or higher next year.

Federal Reserve members are projecting a 2022 U.S. unemployment rate of 3.8%, up from 3.7% in June. The committee’s 2022 GDP growth projection dropped from 1.7% to 0.2%. The Fed’s 2023 GDP growth rate also dropped from 1.7% to 1.2%. The Fed is now projecting 2022 PCE inflation of 5.4%, up from previous estimates of 5.2%.

Photo via Shutterstock.