Fed Hikes Rates Another 0.75 Points as Inflation Fight Continues, Market Volatility Spikes
The U.S. central bank also forecasted the likelihood of future rate hikes well beyond current levels until it reins in inflation.
Inflation in the U.S. currently sits near its highest level since the early 80s, leading Fed Chairman Jerome Powell to announce another 0.75 point rate hike, the third in succession. The Fed funds rate is now 3% – 3.25%, its highest level since early 2008.
In addition, the Fed says it intends to keep hiking rates until the Fed funds rate hits a “terminal rate,” with a projected 2023 endpoint of 4.6%.
The Fed’s official press release stated:
“Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
In the press conference following the announcement, Fed Chair Jerome Powell commented:
“Reducing inflation is likely to require a sustained period of below trend growth. And, it will very likely [mean] some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the long run. We will keep at it until we’re confident the job is done.”
Source: CNBC Television YouTube
Following the Fed’s rate hike announcement, markets have experienced extreme volatility, with the S&P 500 (SPX), NASDAQ Composite (IXIC) and Dow Jones Industrial Average (DJI) all dropping sharply immediately following the Fed news. However, all three indices quickly rallied back into positive territory, with the S&P 500 jumping 0.76%, while the NASDAQ and Dow Jones climbed 1.16% and 0.58%, respectively.
However, those gains were short-lived as all three major U.S. indices would close Wednesday’s trading session in the red. The S&P 500 closed the day down 1.71%, with the Nasdaq closing down 1.79% and the DJI down 1.7%.
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