Federal Reserve Chairman Jerome Powell © AFP=News1
Reporter Shin Ki-rim = The US central bank, the Federal Reserve, raised its benchmark interest rate by 0.25 percentage points. The Fed raised rates for the first time in three years and three months since December 2018. It plans to raise interest rates by 1.5 percentage points for the remainder of this year in order to catch inflation at the fastest rate in 40 years.
◇Year-end interest rate 1.75~2%… aggressive impression
The Feds monetary policy-making body, the Federal Open Market Committee, raised its benchmark interest rate for the first time since December 2018 after a two-day meeting. The interest rate, which was at the zero level, rose by 25 basis points to 0.25% to 0.5%. For the rest of this year, interest rates will rise six more times, 150 basis points.
In a press conference after the FOMC meeting, Fed Chairman Jerome Powell described the extremely tight job market amid high inflation as the background for the rate hike. The FOMC said in a statement that it expects to continue raising its target range for interest rates.
The rate hike plan has become more aggressive than it was three months ago. The dot chart showing interest rate forecasts pointed to 7 hikes in 2022 this year and 3 hikes in 2023 next year. In the case of 2024, interest rates are expected to remain frozen. The base rate will rise to 1.75-2% by the end of this year. Compared to the dot plot in December of last year, it has become much more hawkish. Three months ago, interest rate hikes were expected three times this year.
because of inflation. In the economic outlook, the core inflation forecast for this year was 4.1%, which was raised by 1.4%p from 2.7% in December. Next years inflation will rise from 2.3% to 2.6%, and next years inflation will rise from 2.1% to 2.3%, respectively.
The growth rate forecast was drastically lowered from 4.0% this year to 2.8%, and it was frozen at 2.2% and 2.0% for next year and the year after that. The unemployment rate remained at the previous 3.5% for both this year and next year, and the unemployment rate for next year rose slightly from 3.5% to 3.6%.
◇ Powells US economy is strong… Low chance of recession next year
“The US economy is strong enough to withstand strong rate hikes, and a recession next year is unlikely,” Powell said. He repeated twice at the press conference that the economy was very strong, noting that the demand for employment was very strong.
He also dismissed the prospect of a recession in the U.S. as low. He said the odds of going into a recession within the next year were not particularly high.
Chairman Powell expected that the Feds rate hikes could be handled by the good financial situation of individuals and businesses. In addition, he said, quantitative austerity measures to cut bonds bought during the pandemic could begin in May, he said.
But inflation is also strong, Powell said, especially if the rising cost of necessities can be met.
He also predicted that the Russian invasion of Ukraine could cause trade and financial market volatility, damaging the US economy.