[Image source = Reuters Yonhap News]
The era of zero interest rates came to an end when the Federal Reserve, the central bank of the United States, raised interest rates for the first time in three years and three months.
In a statement after the Federal Open Market Committees regular meeting on the 16th, the Fed announced that it would raise the federal funds rate by 0.25 percentage points from 0.00-0.25% to 0.25-0.50%. It is the first time in three years and three months since December 2018 that the Fed has raised the key interest rate.
The Fed also predicted a rate of 1.9% at the end of this year through a dot chart showing future interest rates. This implies an additional six-fold increase of 0.25 percentage points each in the remaining FOMC. It is expected that three increases will be possible next year.
The FOMC said it expects it to be appropriate to continue to increase the scope of the target. In addition, with respect to the Russian invasion of Ukraine, the impact on the US economy is very uncertain, but in the short term, it is expected that it may put additional upward pressure on inflation and burden economic activity.
The US GDP growth forecast for this year has been revised down from 4.0% to 2.8%. The inflation rate has risen to 4.3%. The unemployment rate forecast is 3.5%, the same as the previous year.
Markets are watching the pace and breadth of future tightening, as well as specific plans to shrink the balance sheet, which will be announced at the upcoming press conference by Fed Chairman Jerome Powell.
